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

Credit card story time.

Buddy of mine in the Bay area had a chain of 40 dry cleaners, this is back in the late 80’s. He would not accept credit cards because of the two and a half percent charge the credit card companies demanded, and he only worked with a 5% profit margin. So he only took cash and checks. (Very common back then),

One day a credit card company came in and said they would do a 3-month trial and would charge him nothing if he terminated it after 3 months.

First month his profit went up 3%
Second month it went to a total of 5%
And by the third month it was up to 7%

He decided to do it and when they came in he got them to sign the contract for 2% he told them he couldn’t figure it out completely yet but that his profit had gone up.

The salesman told him that’s because employees can’t steal money if it’s not cash.
He was losing 7% of his money to theft…

Edit.
So his profit went up to 12% from 5% because of credit cards,
he’s really rich now…