Today I saw them offering credit cards. Why do companies like this that have nothing to do with finance and where you probably only go once or twice a year offer credit cards?
In: Economics
Brand loyalty and little if no charges from credit / debit processing fees.
The company hopes (and has data to prove) that if you hold a credit card that says “X” on it, you’ll be more prone to using that card at that place. Also, when you run any credit or debit card as payment, the retailer gets charged a processing fee. The fee depends on the card. So if the retailer offers their branded card, the retailer will not incur charges or fees on their own card. Thats why gas stations do it. Their profits get eroded away quick with fees from card processing .
They know you’re likely about to drop a sum on repairs – most people can’t pay for the big ones out of pocket and this gives them the benefit of a payment plan that you have to pay interest on. Makes them more money, keeps you on the hook.
Let’s remember what credit is. The company is giving you products for money that you don’t have, while you pay them back later.
Even if I was just a simple muffin baker, selling muffins from a cart on the side of the road, I could still offer credit to customers. You want 5 muffins but don’t have the money today? That’s ok, you can have them today, just pay me back later. How do we keep track of this credit I have just given you? With a card, so we can keep track of your credit and your details, so we can do this kind of credit transaction when necessary.
The card is just a tool to track the transactions. Credit is something that anyone can do for anyone else, whether you are a person, company, or bank.
>Why do companies like this that have nothing to do with finance
Typically, they’re just partnered with a bank like Chase. It’s more just a “branded” card than. That’s not *always* the case, but usually.
>where you probably only go once or twice a year
It’s still about loyalty. If you have *their* card, they know you’re more likely to choose them *every* time you need that product or service.
Big companies have a lot of money. Money can be a resource to make more money. So those big companies that have a lot of money, lend people money in exchange for more money in the form of credit cards. You borrow some money from that big company to pay for things, and then pay that company back plus a little extra.
Because it is profitable. The cards are administered by major financial institutions who earn all sorts of money from exorbitant interest rates, and the face company buys customer loyalty with points and discounts for the cards.
Two main reasons: repeat customers, and fees on lending
1) Repeat customers: When you have a card with them, you’re more likely to continue to user their service, become a long term customer, and use them over others. This is essentially the goal of any company, to encourage long term customers. Long term customers tend to be a LOT more valuable than new customers. Additionally, having a line of credit allows you to purchase beyond your means, which means you’ll again be more likely to spend more money. Studies and research basically shows, if you have a CC from a company, you spend more money there and become a longer term company. Its a no brainer, its actually surprising we don’t see even more cards available.
2) Lending Fees: Credit card fees and interest can make the company some pretty serious money. There’ a lot of intricacies here about the mechanics of how it works, but suffice to say, there’ a lot to gain from lending money.
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