How does my credit card company benefit if I get rewards but never carry enough of a balance to owe interest payments?
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Merchants pay a fee to the credit card companies in order to use/process their credit cards.
The business where you made the purchase pays a higher fee if you use a rewards card. That’s why I don’t use rewards cards
every time you make a retail purchase with a credit card the merchant pays a fee of something like 3% of your purchase amount to the credit card company. so it’s in the company’s best interest to keep you buying stuff with the card.
A credit card company charges a retailer a fee + percentage of purchase. So you buy $100 shoes and the shoe store pays your credit card company 50 cents + 3% of the cost ($3.50 total). They then give you $1 back in rewards.
every time you use the card the business you used it with pay a convenience fee to the credit card company for processing the transaction. so they make money that way too.
Credit card companies make their money 2 ways, either be charging ridiculous interest rates on balances, or by charging transaction fees.
Every time you buy something on a card the merchant pays a fee to the credit card company. So even when you don’t hold a balance they make money.
So giving people rewards encourages you to use the card more frequently, so the bank in turn charges more transaction fees.
Meanwhile the interest rates on cards are so high that if you miss even 1 months payment then you’ll pay more than the rewards are worth. And there’s a lot of people out there with Credit Card debt…
Aside from the others who said “the retailer pays a fee too” ….
I think the bigger answer is that very few people carry zero balances. I always pay off every month, been doing so for 10+ years. And yes, I reap the benefits of cash-back rewards.
But I think I’m in the minority. So if MOST people carry balances, it’s still profitable even if a handful do not.
Also, just because you don’t carry a balance and pay interest doesn’t mean thousands of other people don’t. Credit card companies win because of the merchant fees and the interest paid by others. Those of us who pay off our balances and get the rewards are in the minority.
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