Every time people use their credit cards, the bank has to send the money to the merchant at some point. Most people pay their CCs at some point but while the banks wait for that, how are they able to credit the merchant?
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The interest rate on credit cards is among the highest among all common financial products.
If the bank can just pay the merchant from their current cash reserves they will, but if they need to borrow from another bank to do it they still come out way ahead because the interest the credit card owner is paying on their loan from the bank is *far* higher than what the bank is paying another bank to borrow the money. So, either way, as long as you pay your balance + interest *eventually*, the bank comes out way ahead.
They arent operating “paycheck to paycheck” like many people do. Simply they have more than enough to cover your charges until you pay
Every credit/debit card account is a ledger entry with a corresponding balance. With a debit card it’s the balance in your account, with a credit card it’s the amount that’s been credited to your account. Multiply those balances by tens of millions of consumers.
Because they loan out more money than just Credit Cards. They have many different types of loans, all of which pay them more money than they are paying out.
Mortgages, business loans, personal loans, car loans..etc all make money for the bank. On top of people only paying the minimum payment on the Credit Cards all come together to make money for the Bank.
Plus you have the fact that People and Businesses are keeping their money in the bank’s system itself. That money doesn’t just sit in a vault somewhere. The banks uses that money to give out loans and make payments that it has to, such as Credit Card charges you make.
All of this works together to ensure than they have more than enough to make any payments for you using your Credit Card.
And if things get tight because they’ve loaned out too much money, they always have the option to take out a loan themselves.
First, the credit card company pays the merchant. The merchant pays the credit card company (2-5%, or a flat fee, or a complicated arrangement – the merchant is happy to take this deal since handling cash is much more expensive).
Then, you owe the credit card company. Credit card companies are made of money and would, in fact, prefer if you were a bit late on your payments (but not very late!) or if you only paid their minimums so that they can charge you interest and fees for the rest of time. CC companies would lose a lot of their income if everyone paid them in full at the end of the month. Some of them might even go bankrupt if we were all so lucky and responsible.
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