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?


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.

| improve this answer | |
  • 1
    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

Not the answer you're looking for? Browse other questions tagged or ask your own question.