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How do credit card companies make money from cardholders who do not carry a balance?

It seems credit card companies are eager to offer their services to borrowers even if they have a tendency to pay in full each month. How do banks and credit card companies make money from these individuals who avoid interest charges?

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Credit card companies charge merchants for accepting their cards. They'll take their cut and give you some of the fee back as a reward.

So, in reality merchants have increased their prices to accommodate for the credit card processing fees. The credit card takes a bit of their fee and gives you back some of the money you wouldn't have spent if there were no fees for using a credit card.

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    the fee is typically in the range of 3 % to 5%. that's why they can offer you 1% or even 2% cashback and still make money on it. – Aganju Jan 23 '16 at 16:33

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