Comments on: Convenience credit card users are not perfect customers

By: Lord

Lord — Mon, 09 Nov 2009 20:27:10 +0000

Issuers make money on nearly all their customers. Those that carry balances only appear more profitable because it doesn’t account for the losses issuers have to take when the economy and their borrowers turn bad. About 30% carry no balances, but these are often the largest chargers providing more in transaction fees.

By: Danielle

Danielle — Sun, 08 Nov 2009 18:23:24 +0000

I worked at a credit card issuer for 7 years in a former career and the same discussions were going on at that time. The interchange fees that you reference are not a huge source of income to the issuer. Visa and MC charge lower fees than Disocver and Amex and part of those fees go straight to Visa, MC, Discover or Amex. There is a definite cost to the issuer in keeping your account open. Statements, plastics, marketing, etc. The way issuers make money is through interest and fees. The issuer’s goal has always been and will always be to get you to carry a balance.

If you have a rewards card, the issuer is probably losing money if you don’t carry a balance from time to time. Most rewards cards carried fees until the late 90s until Cap One (if I remember correctly) tried to up its image and no longer wanted to be a subprime player and started trying to appeal to a broader market. Then other companies had to follow.

I personally use my debit card for everything, but that has more to do with my personal issues with intense financial irresponsibility. I have had discussions with merchants who appreciate the debit usage because it keeps more money in their pockets.

But the credit card market is a business. As soon as one company realizes that there is a group of unhappy consumers, they will create a product that works for you and go after convenience users. And more importantly, they’ll find a way to make it more profitable for themselves.

By: VT

VT — Sat, 07 Nov 2009 00:26:19 +0000

What Aryn said. I use my rewards cards to pay for nearly everything. Seems to me that if I dump a card over a fee, the issuer is going to lose several times that amount in merchant fees.
Or perhaps they’re all trying to drive us to debit cards

By: Aryn

Aryn — Fri, 06 Nov 2009 17:07:43 +0000

Actually, the credit card companies DO make money from us responsible users. They collect a small percentage from every single transaction in the form of merchant fees. They collected $45 billion last year. As far as I’m concerned, that’s plenty.

By: jcb

jcb — Fri, 06 Nov 2009 15:59:37 +0000

You don’t mention the fees the cc companies collect from the vendors (which of course the users pay in the end)

By: Dr Dean

Dr Dean — Fri, 06 Nov 2009 11:58:52 +0000

MB, I too am wondering when the other shoe will drop, regarding fees on the cards I use. I have a fee card already-Delta/AmEx because the frequent travel benefits have always made sense financially-in my case. But a lot of the businesses here and in Central America, don’t take AMEX-so I have a Visa for “convenience” use. I will have to decide if the “convenience” is worth the fee when the time comes.

I agree,the companies in question are certainly in the business to make a profit, not to be our friend-if you can’t afford to play, don’t get into the game.

By: dylan

dylan — Fri, 06 Nov 2009 10:28:46 +0000

Everyone seems to forget transaction revenue. Customers who use their card frequently and pay it off every month are still profitable, because they generate lots of transaction revenue. Typically it’s some percentage of the total purchase. That’s why banks offer rewards programs — it’s basically giving customers back a cut of the transaction profit they make.

(In addition to transaction revenue, customers who do not carry a balance from month to month also pose very little liability to the bank, which is a big deal from a balance sheet perspective.)

Note, I’m not disagreeing with your overall premise. Certainly, customers who carry some kind of balance and pay finance charges over a period of time are more profitable than those who don’t (assuming that those balance-carrying customers don’t eventually default). Just wanted to point out that you can pay off your balance every month and still be considered somewhat profitable by the bank.