How Do Credit Card Companies Make Money? [Free Guide]

How do credit card companies make money? In this article, we’re breaking down the answer for you.

This will include an explanation of the four key ways credit card companies make money and what this means for you as a consumer looking to select the best card.

This article is part of our free series on credit card basics, including how to get a credit card with an ITIN number, which you can access by clicking here.

Feel free to use the table of contents to jump ahead to the sections most relevant to you.

Table of Contents

  1. How Do Credit Card Companies Make Money?
  2. Ways Credit Card Companies Make Money
  3. Frequently Asked Questions
  4. Ready to Explore Your Options?

How Do Credit Card Companies Make Money?

How credit card companies make money ultimately depends on whether you’re referring to card issuers, card networks, or a combination of both. That said, the overwhelming amount of revenue generated throughout the chain of credit card related activities comes from merchant fees, cardholder fees, and of course interest charges.

Ways Credit Card Companies Make Money

Here’s a closer look at the ways that credit card companies are able to generate revenue from their clients and businesses that accept payments through their networks. Again, the primary revenue-generating activities for credit card companies include:

  • Merchant fees
  • Cardholder fees
  • Interest charges

We explore each of these in more detail below.

Merchant Fees

Credit card companies make money from merchants (retailers) by charging fees for processing customer payments. In other words, each time a customer makes a purchase, the credit card company gets part of the revenue.

The amount that credit card companies charge merchants depends on the network being used (e.g. Visa, Mastercard, American Express) and the value of the purchase. These fees are made up of three components: interchange fees, assessment fees, and processing fees.

Importantly, each card network sets its own fees. Out of all the major networks, American Express charges merchants the most, which is why it can be hard to find merchants that accept American Express outside of major developed nations like the US, UK, Europe, and Canada.

Cardholder Fees

Credit card companies charge a wide range of different fees to cardholders. Not surprisingly, each company has its own set of fees and corresponding charges. That said, there is some consistency in the most basic fees that credit card companies charge, which include annual fees, late payment fees, foreign transaction fees, and more.

Importantly, depending on the specific card network, card issuer, and even card that a cardholder has, the fees that they pay can vary. So, if you are looking for a cost-effective credit card, you should carefully review the fees from each option first.

Of course, in many instances, credit card companies try to offset the fees they charge by offering other incentives. For example, American Express is well known for its bonuses, travel rewards, and cash equivalent incentives for a wide range of consumer products and services.

Interest Charges

When most people think of how credit card companies make money, they immediately think of interest charges. And, it makes sense since interest charges are the main source of revenue for credit card companies.

That said, credit card companies only make money if the cardholder actually carries a balance from month to month on their credit card. In other words, when a cardholder pays their balance each month, the credit card company does not generate any revenue from the interest charge.

Not surprisingly, the vast majority of individuals do not pay off their credit card balances each month. In fact, in recent months, the balance of credit card debt in most major countries (including the United States), has reached historic highs.

As a result, credit card companies continue to generate significant revenue from the collection of interest charges.

Do You Want Our Free Non-Resident Banking Guide?

Sign up here to receive our Free Non-Resident Banking Starter Guide and weekly updates on the best account opening options available:

Frequently Asked Questions

Below are two of the most common questions that we receive from people looking into how do credit card companies make money. If you have further questions you would like answered, don’t hesitate to get in touch with us directly.

Do Credit Card Companies Lose Money on Some Customers?

Yes, credit card companies do lose money on some customers. In fact, depending on the card network and card held, it’s possible that the individual consumer contributes very little to the credit card company’s revenue. This is especially true if the cardholder pays their outstanding balance each month. That said, credit card companies will still generate revenue on annual (and other) fees as well as from the merchant every time the credit card is used.

How Does the Credit Card Industry Make Money?

The credit card industry makes money through interest charges, cardholder fees, and merchant fees. In other words, credit card companies are able to extract revenue from all intersections in the process of facilitating and collecting payments. However, the majority of revenue in the credit card industry comes from interest charges levied on individual cardholders.

How Does a Credit Card Company Make Money If You Pay Off Your Balance Every Month?

How a credit card company makes money if you pay off your balance every month will depend on the card issuer, card network, and card you hold. These factors impact how the credit card company makes money because they result in fees paid to the credit card company for the privilege of having the card and revenue every time the card is used to make a purchase.

Ready to Explore Your Options?

If you would like assistance navigating your banking options in the USA, we can help.

You can access GlobalBanks USA, our dedicated US account opening service, in just a few clicks.

GlobalBanks USA is 100% personalized, with dedicated account management, tapping into our team’s expertise, including suggestions on which banks are best for you and direct banker introductions.

Of course, if you have any questions, please contact us directly.

Share This Article on Your Favorite Platform
GlobalBanks Team
GlobalBanks Team

The GlobalBanks editorial team comprises a group of subject-matter experts from across the banking world, including former bankers, analysts, investors, and entrepreneurs. All have in-depth knowledge and experience in various aspects of international banking. In particular, they have expertise in banking for foreigners, non-residents, and both foreign and offshore companies.

Sorry, but you cannot copy the content on this page.