How do CC companies make money?

[Anonymous]

Specifically... how do they make money on someone who pays their balance for the statement cuts?

I obviously know they make a killing off folks that carry balances with interest fees, advance fees, etc. And I know merchants pay a fee on every swipe, but as I understand it, that $$ goes to the Visa, MC, etc networks... not the banks.

But for someone like myself that doesn't run a balance, are they only profiting on my annual fee (where in a couple cases, I have no annual fee).

And if they are not making money on me, do they actually look down on me as a customer?

[takeshi74]

Very common topic.  Don't overlook previous discussions as a resource.

Swipe fees.

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@Anonymous wrote:

And I know merchants pay a fee on every swipe, but as I understand it, that $$ goes to the Visa, MC, etc networks... not the banks. 

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That is incorrect.  Creditors do get a slice of the pie.

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@Anonymous wrote:

And if they are not making money on me, do they actually look down on me as a customer? 

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They are making money.  Consumers that always PIF are sometimes referred to as "deadbeats" but this is an oversimplified perspective.  While creditors do want to make as much as possible there's generally greater risk with those in debt carrying balances and paying interest.  On the other hand, those thay pay in full are generally less risk.  Creditors generally need to strike a balance with the two types.

Additionally, consumers with better credit and higher income are probably generating more in swipe fees with greater credit card spend.

[Anonymous]

They make a lot of money on swipe fees. Basically the merchants pay a company (Square, PayPal, whoever else) to process their payments, this fee generally doesn't go entirely to the processor, the processor has to pay fees to the card companies in order to be able to process the payments. The CC company makes money from the processor each time a card is charged.

[gdale6]

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@Anonymous wrote:

They make a lot of money on swipe fees. Basically the merchants pay a company (Square, PayPal, whoever else) to process their payments, this fee generally doesn't go entirely to the processor, the processor has to pay fees to the card companies in order to be able to process the payments. The CC company makes money from the processor each time a card is charged.

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They also make it when the merchant issues a refund to someones card they get it coming and going....