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?

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Answer 1

Credit card companies charge a fee for credit card transactions, with a small transaction fee plus a percentage of the value of transaction — something like 50 cents plus 3% of transaction amount. Then the credit card company basically gives the customer 1/3 or 1/2 that fee.

There are also sometimes annual fees in credit cards that help offset the rewards, you pay $80 or $100 a year for a card with a better rewards program. Some people spend enough to earn that all back and then some, others do not.