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Whoa. Banks make a ton of money from interchange fees.

Frequent Contributor

Whoa. Banks make a ton of money from interchange fees.

I was reading up on fees and how this cc companies are paying for all these cash rewards/points.

 

So for a example, a $100 charge creates, assuming a 2% swipe fee a $2 fee of which, the bank keeps $1.75, VISA/MC/AMEX/DISC get $.20, and the rest goes to the other bank on the merchant side.

 

No wonder people are always ragging on banks.  And here I was thinking banks don't make money off of me because I don't pay interest.

My Wallet:
AMEX Platinum | Discover It $20.3k | Chase Sapphire Reserved $16k | Chase United $12k | AMEX SimplyCash Plus Business $11.6k | AMEX Schwab $9k | AMEX BCEP $8.2k | Citi Costco Anywhere Visa $8k | Chase Amazon Visa $8k | Chase Sapphire Preferred $7k | Chase Freedom $5k | Citi Simplicity $5k | Paypal Extras Platinum $5k | Wells Fargo $5k | Citi Best Buy $4.2k | Citi Visa Signature $3k | Care Credit $3k
Message 1 of 19
18 REPLIES
Super Contributor

Re: Whoa. Banks make a ton of money from interchange fees.

Banks will always find a way to make money, don't worry about them Smiley Tongue 

Message 2 of 19
Frequent Contributor

Re: Whoa. Banks make a ton of money from interchange fees.

My math isn't adding up.  How can they give 5% cash back when only collection 2-3% swipe fees?  Are they banking on most people to pay interest?

My Wallet:
AMEX Platinum | Discover It $20.3k | Chase Sapphire Reserved $16k | Chase United $12k | AMEX SimplyCash Plus Business $11.6k | AMEX Schwab $9k | AMEX BCEP $8.2k | Citi Costco Anywhere Visa $8k | Chase Amazon Visa $8k | Chase Sapphire Preferred $7k | Chase Freedom $5k | Citi Simplicity $5k | Paypal Extras Platinum $5k | Wells Fargo $5k | Citi Best Buy $4.2k | Citi Visa Signature $3k | Care Credit $3k
Message 3 of 19
Regular Contributor

Re: Whoa. Banks make a ton of money from interchange fees.

plus there is a really small % of people that PIF each month compared to the ones that accrue interest over the months and years.

Message 4 of 19
Moderator

Re: Whoa. Banks make a ton of money from interchange fees.


Razeus wrote:

My math isn't adding up.  How can they give 5% cash back when only collection 2-3% swipe fees?  Are they banking on most people to pay interest?


Couple of things I think might be the difference:

 

  • Rewards cards currently have higher swipe charges than no-frills ones.
  • They are expecting some folks to carry balances, you may not, but they look at their customer base in aggregate.  
  • More and more are offering preferential treatment to folks with depository accounts (Chase / BOFA recently, 10/10 Chase, the bonus rewards for redeeming into BOFA account for them), having more money in the bank directly affects how much they can lend out for additional profit opportunities.
  • Annual fees, not everyone either chases non-AF cards exclusively, or meets the spend requirements to offset the AF.  Humans are often bad at math Smiley Wink

 Edit: trying to make this easier to read

 

Starting Score: EQ 5 561, TU 98 567, EX 2 599 (12/30/11)
Current Score: EQ 5 771, TU 4 758, EX 2 758, EQ 8 795, TU 8 762, EX 8 786 (7/28/17)
Goal Score:    EQ 5 750, TU 4 750, EX 2 750, EQ 8 800, TU 8 Blah, EX 8 800 (01/01/18)


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Message 5 of 19
Established Contributor

Re: Whoa. Banks make a ton of money from interchange fees.

The local liqueur store guy tries to charge me a dollar extra to use my BCP there (classified as grocery).  I asked him why and he said Amex rapes him with a 9% swipe fee.  I called BS and we started arguing lol.  There is a liqueur store around the corner that doesn't bat an eye at my amex and it is also classified as a grocery store.  I go there now almost exclusively and I get 6% back. Love it.

Amex BCP/BC/Zync - Amex Business GR - Barclays NFL Visa Sig 49ers/Arrival - BoA BBR - Cap 1 Quicksilver - Citi Forward/Preferred - Chase Amazon/Freedom/Ink Plus - Discover IT - Fidelity Amex - GECRB Amazon/Walmart - PenFed PRV - Target - USAA Amex - US Bank CASH+/Club Carlson
Message 6 of 19
Frequent Contributor

Re: Whoa. Banks make a ton of money from interchange fees.

AMEX charging double or triple Visa/MC fees are pure lies.  Aren't they inline with everyone else now?

My Wallet:
AMEX Platinum | Discover It $20.3k | Chase Sapphire Reserved $16k | Chase United $12k | AMEX SimplyCash Plus Business $11.6k | AMEX Schwab $9k | AMEX BCEP $8.2k | Citi Costco Anywhere Visa $8k | Chase Amazon Visa $8k | Chase Sapphire Preferred $7k | Chase Freedom $5k | Citi Simplicity $5k | Paypal Extras Platinum $5k | Wells Fargo $5k | Citi Best Buy $4.2k | Citi Visa Signature $3k | Care Credit $3k
Message 7 of 19
Established Contributor

Re: Whoa. Banks make a ton of money from interchange fees.

He told me with a straight face "9%".  I could not belive it.  I hope it's not true or I bitched him out for nothing. lol

Amex BCP/BC/Zync - Amex Business GR - Barclays NFL Visa Sig 49ers/Arrival - BoA BBR - Cap 1 Quicksilver - Citi Forward/Preferred - Chase Amazon/Freedom/Ink Plus - Discover IT - Fidelity Amex - GECRB Amazon/Walmart - PenFed PRV - Target - USAA Amex - US Bank CASH+/Club Carlson
Message 8 of 19
Moderator

Re: Whoa. Banks make a ton of money from interchange fees.

Not all merchant accounts are created equally.  9% does seem a little outrageous; however, Amex has traditionally been higher than Visa / MC for all the merchants I've talked to.  

Starting Score: EQ 5 561, TU 98 567, EX 2 599 (12/30/11)
Current Score: EQ 5 771, TU 4 758, EX 2 758, EQ 8 795, TU 8 762, EX 8 786 (7/28/17)
Goal Score:    EQ 5 750, TU 4 750, EX 2 750, EQ 8 800, TU 8 Blah, EX 8 800 (01/01/18)


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Message 9 of 19
Valued Contributor

Re: Whoa. Banks make a ton of money from interchange fees.

As has been seen in other posts, most if not all CSR's and Cashiers have no idea what they are talking about credit SP vs HP what happens when a card is replaced with various lenders, underwriting standaards, etc, all it takes is one person to give mis-infomation about something and it gets repeated as if it was the truth, the more shocking the mis-information the more likely its to be remembered and repeated. 

 

Its certainly isn't part of a cashier training what the swipe fee is for various cards. But somebody comes in and says the switpe fee is 9%, its shocking and will be repeated as truth. It may even be true that one of thse new itunes or android apps have  a swipe fee of up to 9% for people that swipe AMEX once a month or less. Any retailer with an established account can get much lower swipe fees, Major vedors have volumes that reduce the swipe fee to less than 1.5%. 

 

Cards: Chase Southwest 20k & CSR 10k & CSP 10k & Freedom 6.6k & Amtrak/Freedom 4.6k, FNBO DISC 25.1k Oregon Duck 5k, & AMEX BCP 15k & Hilton Surpass 7.5k & Delta Gold 6k & Zync NPSL, Fidelity AMEX 17k Commerce5.9k & Cash Forward 7.5k & Sams Club MC 10k, Paypal Extras MC 7.5k, CapOne Venture 15k, QS 2.5k, QS 750, Amazon 5.9k, Walmart 10k, Citi Simplicity 9k, Discover IT 16k and a nice stack of store cards.
Last APP/HP 5/15/2017 Marcus Loan. 30k
Message 10 of 19