Credit card companies are those banks and credit unions that offer you credit cards. Of course, since these companies are business oriented, they aim to make profits and not offer you free financial help in any way. But just how much profit are these companies making? Say you make a transaction; how much will a credit card company make on such a transition?
Credit card companies make around 1% to 3% per transaction, which is small. However, when you consider the millions of daily transactions, you become astonished.
Some people use their credit cards without caring about the issuer or network. In contrast, there are the intuitive ones who want to have in-depth knowledge of how credit cards work and how much credit card companies make per transaction. If you are the curious one in this context, this article is for you.
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How Much Do Credit Card Companies Make per Transaction?
The term “credit card companies” includes two types of enterprise: issuers and networks.
Issuers: are banks and credit unions that issue credit cards to the public. They include Chase, Citi, Synchrony and PenFed Credit Union. When you use a credit card, you are actually borrowing money from the issuer. Retail credit cards that bear the name of a store, gas company, hotel, etc., are usually issued by a bank under agreement with that retailer. Hence, these are often regarded as “co-branded” credit cards.
Networks: are companies that process credit cards transactions. The major networks In the United States are Visa, MasterCard, American Express and Discover. American Express and Discover function as networks and issuers, meaning they process credit card transactions and issue credit cards to people.
When you use a credit card, money is transferred electronically via many hands, from the issuer down to the network to the merchant’s bank. The network also ensures that the transaction is linked to the right cardholder, you, so that the issuer can take payment from your account.
How Credit Card Companies Make Their Money?
You play a key ingredient in a credit card company’s moneymaking recipe, like the merchants where you swipe your cards. Here are some of the common ways credit card companies make money
Interest:
According to the Consumer Financial Protection Bureau, the majority of revenue for mass-market credit card issuers is derived from interest payments. But, interest can be avoided. Issuers normally charge interest only when you carry a balance from month to month. So, settle your balance completely, and you won’t have to bother about interests.
Annual Fees:
These are fees you pay as the cardholder to keep the account open. Most cards that charge annual fees are reward credit cards. In this case, yearly fees help cover the cost of those rewards. At the other end of the spectrum, some credit cards for bad credit also charge annual fees. For these cards, the annual fee helps balance some of the risks to the issuer of giving credit to an individual with a bad credit history.
You can avoid annual fees by selecting cards that don’t have this fee. Many of the top cashback rewards cards, for example, lack annual fees. You can even find some good travel cards that don’t have annual fees.
Transaction fees:
Other than basic purchases, most other types of credit card transitions have a fee. For example, if you initiate a balance transfer, you’ll need to pay a balance transfer fee. The same goes for credit card cash advances. Many cards also charge international transaction fees when you initiate a purchase in another country or currency.
You can avoid transaction fees simply by avoiding making transactions with fees. You won’t be charged a balance transfer fee if you never initiate a balance transfer. The same applies to cash advances. Foreign transaction fees can be difficult to avoid, especially if you travel often.
Penalty fees:
Opening a credit card account institutes a contract between you and the issuer. If you flout the rules of that contract, most issuers will charge you a fee. For instance, if you pay your bill after your due date, the issuer will charge you a late fee. Also, if you spend more than your credit limit, you may have to pay what we call an over-limit fee.
To avoid penalty fees, you may want to adhere to the terms of your cardholder agreement. Settle your bills early every month, and you won’t have to pay late fees. Try creating automatic payments with your bank if you often find it hard to recall due dates.
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Credit Card Companies – Earnings for Each Transaction:
Each time you utilize a credit card, the merchant pays a processing fee equal to a percentage of the transaction. The percentage of that fee transferred to the credit card company through the payment network is regarded as “interchange,” and is usually about 15 to 3% of the transaction.
So basically, credit card companies make 1% to 3% of how much you spend per transaction. For instance, if you make a transaction with your credit card worth $1000, the credit card company stand to make $10 to $30.
Below is an insight into credit card income for five prominent banks in the United States:
| Company | Credit Card Interest Income | Interchange Income | Total |
| American Express | $8,620,000,000 | $4,042,000,000 | $12,662,000,000 |
| Barclays | $3,079,000,000 | $244,000,000 | $3,323,000,000 |
| Capital One | $18,349,000,000 | $3,179,000,000 | $21,528,000,000 |
| Chase Bank | $51,660,000,000 | $20,370,000,000 | $72,030,000,000 |
| Discover | $9,700,000,000 | $1,066,000,000 | $10,766,000,000 |
How Much Do Credit Card Companies Make per User?
Based on data from 2017, each active account makes $180 on average for credit card companies each year. But, again, credit card companies make money mainly from the interest accumulated and the interchange fees per account.
| Company | Active Cardholder Accounts | Interest Per Account | Interchange Per Account | Total |
| American Express | 62,700,000 | $36.93 | $60.43 | $97.36 |
| Barclays | 16,300,000 | $180.50 | $18.50 | $199.00 |
| Capital One | 62,100,000 | $172.31 | $34.09 | $206.40 |
| Chase Bank | 82,800,000 | $118.58 | $21.13 | $139.71 |
| Comenity | 9,589,510 | $368.45 | $15.25 | $383.70 |
| Discover | 38,700,000 | $191.23 | $17.40 | $208.63 |
| Synchrony | 36,700,000 | $243.38 | $16.43 | $259.81 |
