How do banks make money through credit cards?

Credit cards are a major type of card promoted by banks. Nowadays, a variety of credit card types are flooding the eyes of consumers, and our lives seem to be surrounded by countless credit cards. Why do banks require so many credit cards every year? How do banks make money by issuing credit cards?

Income composition of credit card business:

1. Card issuance business, income includes: first-year annual fee, card production fee (reissue card), fast card issuance fee, and other card issuance income< /p>

2. Revolving credit business, income includes: consumption revolving interest, cash advance revolving interest, late payment fees

3. General consumption business, income includes: card issuing bank commission, cash advance procedures Fees

4. Account management services, income includes: annual fee for the following year, loss report fee, card replacement fee, etc.

5. Value-added business, income includes: merchant commission, cardholder procedures Fees

So, in general terms, the profit points of banks through credit cards can be summarized as:

1. Interest income. If you fail to repay the loan overdue, you will have to pay interest at an expected annualized interest rate of 5%, which is equivalent to one year. This expected annual interest rate is very high. However, it is estimated that as people become more and more aware of credit cards, it will become more and more difficult to collect this kind of interest.

2. Consumption fee income. After the cardholder makes a purchase in the mall, the bank charges commission income from the mall. Don’t underestimate the current ratio. This is the handling fee charged for each transaction, which is very considerable. In addition, handling fees are charged for credit card cash withdrawals, loss reports, emergency rescue and other services, which are also income.

3. Annual fee income. This annual fee is basically uncollectable now and will never be collected in the future.

Fee income, interest income, and annual fee income, the most basic and direct three of them come from the income of the credit card itself. Annual fee income is now collected even by ordinary debit cards

There is also indirect income: income from the use of funds. The money you deposit in the card is used by the bank for investments such as loans or buying treasury bonds. Through investment, the bank earns the difference between the loan interest and the deposit interest as its own Income, this is also the reason why many banks blindly issue cards regardless of costs or the number of valid cards.

Fee income and fund utilization income are the main channels for making money with credit cards.

What about credit cards? Profit?

The profit model of credit card business:

Interest income is the interest paid by cardholders on unpaid credit card balances.

Information exchange income is the fee paid by the acquiring bank to the card issuing bank, accounting for a certain percentage of the transaction amount of the special merchant; the annual cardholder fee is the fee paid by the cardholder to the card issuing bank for obtaining the right to use the credit card. ;Other fees and income include fees and income generated from various other credit card services.

Special merchant rebates are fees charged by the acquiring bank to special merchants for providing transaction processing and assuming credit risks; deposit interest income is the deposit interest income obtained from the deposit accounts of special merchants.

Other income includes income from renting POS and card presses, etc. Among the profits from the credit card business, 78% comes from credit interest income, 10% comes from interchange fees, 2% comes from annual fees, 4% comes from cash withdrawal fees, and 6% is late payment and other income.

Extended information

Features of credit card:

1. Pre-deposit of cash is not encouraged. Spend first and repay later. Enjoy interest-free repayment period and can repay in installments by yourself. (with a minimum repayment amount), and join international credit card organizations such as VISA, MasterCard, and JCB for global use.

2. It is one of the fastest growing financial services today and is an electronic currency that can replace traditional cash circulation within a certain range.

3. It has both payment and credit functions. Cardholders can use it to purchase goods or enjoy services, and can also obtain certain loans from card issuers by using their credit cards.

4. It is a high-tech product that integrates financial services and computer technology.

5. It can reduce the use of cash currency.

6. It can provide settlement services to facilitate shopping and consumption and enhance a sense of security.

7. It can simplify the collection procedures and save social labor.

8. Can promote product sales and social demand.