There are many people who are rely on credit cards. Over the years, money transactions using Credit Cards have increased significantly. But did you ever think how bank make profit from a Credit Card? There are multiple ways from where a bank can earn from a Credit Card. Multiple charges related to a card are the sources of income for a bank.
Not only this, these credit card companies also offer you extensive cashback offers and generous discounts if you use their cards regularly. But have you ever wondered what these companies gain from such discounts and how banks earn from them? Let’s find out.
How does a bank earn from credit cards?
1. Merchant Fees
Whenever you use a credit card to make a payment, banks charge a merchant fee. A merchant fee is a fee that banks charge merchants to cover their infrastructure, security, and transaction processing costs. This fee typically ranges from 2% to 3%.
2. Interest on credit cards
When you purchase something on credit using your credit card, the bank gives you 45 days to repay the money. During these 45 days, the bank doesn’t charge any interest. However, if the money isn’t repaid after the due date, the bank begins charging interest. This interest rate ranges from 30 to 38 percent annually. Furthermore, if you make an EMI, the bank charges a substantial interest rate and earns revenue.
3. Marketing tie-up charges
Now, speaking of discounts, banks also charge marketing tie-up fees with many companies. This means that if you purchase something from a company, they offer you a discount for using a specific bank’s credit card as a payment method. Brands use these discounts to reach more customers. When you receive a discount on a purchase with a credit card, people are more likely to use a credit card for the next purchase.
