eli5 How do credit card companies make money out of people that pay their cards in full before the billing cycle and still get rewards?

Question

eli5 How do credit card companies make money out of people that pay their cards in full before the billing cycle and still get rewards?

In: 808

Answer 1

The majority of people don’t pay the full balance each month so they don’t impact the banks that much. So how do they make their money?:

Retailer:

– most cards have a 2 – 4 % charge on every purchase. Points cards add 2% or more. American
Express historically has the highest fees
– terminal fees. A high transaction card reader can cost up to $1,000 a month. Slower
terminals cost less but in high-volume small stores, the slower speeds limit the number of
customers that can be processed and those few seconds add up over time.
– bank fees

Card holder:

– yearly card fees

– cardholder interest rates.

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So the banks have multiple revenue streams on credit cards. I don’t think that the banks are too worried about the loss in revenue from monthly interest charges. 🙂