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Another thing that many of you might or might not be aware of is that it is not just cardholders who have to pay some amount to use credit cards, even the merchants have to pay for the privilege of accepting credit cards.
Stay tuned and read ahead to find out more about how the credit card providers make money and how you, as a cardholder, can minimize the number of your funds that contribute to these financial gains.
The general broad term “credit card companies” typically includes two types of companies: issuers and networks.
These are banks as well as credit unions that issue the various credit cards. When you, as a cardholder, make use of a credit card, you are typically borrowing funds from the card issuer. The retail credit cards in the market that generally come with the name of a store, fuel company, or other merchants are issued under a contract by a bank with the retailer. Therefore, these cards are referred to as co-branded credit cards.
These are the companies that process the various credit card transactions that occur. The major networks all across the globe are MasterCard, Visa, American Express, along with some others. Companies such as American Express are both issuers as well as networks.
When a credit card is used, the funds move electronically via numerous hands, from the issuers, via the networks, to finally the bank of the merchant. The network also helps in ensuring that the transaction taking place is attributed to the right cardholder (i.e. you) so that your issuer can then charge you for it.
The moneymaking formula of your credit card company has quite some attributes to that equation. The main parts of this equation are you, i.e. the cardholder, and the merchant you shop with.
A major part of the revenue of the mass-market credit card companies is contributed by the interest payments. However, interest payments can be avoided. The credit card issuers in the market only charge interest when a cardholder carries a balance from one month to another. So, if you can manage to pay your balance in full each month, you will not have to bear any interest charges on your credit card.
The subprime issuers in the market, those are the ones that specialize in the card seekers have typically bad credit, generally earn much more from the fee and charges as opposed to the interest charged. Also, the mass-market credit card providers charge a lot of fees as well, however, a large part of them are avoidable. The major fees charged include the following:
Every time you swipe your credit card at a shop, the merchant is applicable to a processing fee which is generally a fixed percentage of the transaction. This part of the payment that is sent to the issuer through the network is referred to as the interchange. These fees are fixed by the networks and can vary depending on the volume of the transactions as well as their values.
If it weren’t for cardholders such as you, the credit card companies would not be making any money at all. However, the good news here is that you can actually limit the amount of money that a provider earns from you. Some tips to avoid extra costs are: