A lot of people think that credit card issuing companies make all of their billions and billions of dollars a year on the fees and interest they charge to the people who carry balances or pay late or go over their limits every month. But carrying a balance on your card, especially a high one, isn’t as exciting to the company as you would think. Lending money to people poses a great financial risk to them. People default, they disappear, they die. If this was their only stream of income, their giant buildings wouldn’t stretch nearly so high.
They do make a lot of money on fees and interest. But do you know what they make the most money off of? “Swipe” fees.
Scenario: You pay your balances off every single month. They’re not getting interest payments from you. They’re not getting fees from you. You think you’re using the card for free and getting away with it! Lemme tell you something. It’s not free. Every time you swipe that card, banks and credit card corporations get paid by the businesses you used your card at. Those credit card terminals aren’t free. Credit card companies and banks get a piece of every single credit card transaction, and that includes check cards.
It’s not a crime for a company to make money. In fact, their model is actually kind of brilliant. They invented a product. Made it super convenient to use their product. Got people to rely on their product. Businesses saw that adopting use of this product actually increased their sales. And the credit card corporations dance off into the sunset. Sure businesses don’t like paying these swipe fees, but they make more money accepting credit card and check card payments than what it costs them in fees. Otherwise, they would go out of business.
It’s kind of a crazy kind of relationship, isn’t it?
If people are allowed to spend money they don’t have, they spend more money. And if people are allowed to spend money without having to carry around physical cash, they also spend more money. That means, more sales for the businesses. And also, more money for banks and credit card companies.
This doesn’t make the bank evil. They provide a service. They should get paid for their service. Perhaps not so much, but paid nonetheless. Large banks, small banks, online banks – they all have fees, and with overdraft protection, it is possible to go into debt with a debit card. So, does it matter, really, whose pockets you’re lining? Your local bank’s, Chase Bank, Bank of America, Citi, Discover, JCPenney, Visa International, Mastercard Worldwide, or any company anywhere that provides a store card or a credit card?
I say, probably not. However, choosing debit over credit will support your bank more, as would using a credit card issued by your bank as opposed to some other bank.
One of the biggest differences that comes from using a credit card over a debit card is that credit card issuing companies, the larger ones especially, make so much money of you using your card that they can often afford to offer bigger incentives for using their products. And we’re not just talking cash back and points either. They will offer other things like travel insurance, purchase protection, and other credit card only services. There are a few debit cards out there that will give you rewards, but a credit card company will “pay” for a round trip to France – provided you’ve lined their pockets with thousands of dollars, of course.
Think about it. Let’s pretend we’re all responsible here and follow a budget. If you spend $2500 on your card in regular expenses and stuff you were buying anyway, then let’s say you get a $25 iTunes gift in return – you may get 1 or 2 points per dollar, but every point is only worth about 1 cent. If they gave you $25, it’s because you made THEM $500, at least. See how that works? They made a $475+ profit off of JUST you, because you used your card to get points, and that is off the people who actually redeem their points. Times this by the millions of dollars people spend with their cards every month.
They KNOW that if they give us an incentive, we will use their products more. There is no “beating” the system. There is no winning. The system is set up in their favor. That is why their buildings tower over everyone else’s. We are all pawns. And new ones are born everyday. There is only lose or get a few bucks back for the thousands of dollars that you’ve spent with their card. The more you swipe, the more money they get. Take it or leave it.