How much did the credit card business earn from you? A gold mine

Credit cards have integrated into everyone’s life in this era. Our average household credit card debt has reached $137,063, which cost us about $1,300 per annum in interest. What is the net profit, total income and expenditure of the credit card business?

First of all, you need to know what the revenue sources for credit card business are.

The sources of income consist of the following items:

  • Interest income. Normally, the interest-bearing balance is 85% of the outstanding balance. The interest is the main source of income for credit card business, which accounts for nearly 80% of total credit card revenues.

So it would be wise if you pay off the credit card balance during  the grace period.

  • Interchange fee. For example, you bought some food at the Macy’s store. Citibank working with Macy’s will pay the fee to your credit card issuing bank.

The average rate for interchange fees is 1.4% now. This income accounts for nearly 20% of the credit card business revenue.

  • Annual fee. The average annual fee is around $20. About 25% issuers now offer annual fee relief for the initial period. A credit card without an annual fee is a good choice.

In the long run, the annual fees are also an expense to you and your family. The fee accounts for nearly 5% of the credit card business.

  • Other. Issuers earned from other credit card services. It includes cash advance fee, balance transfer fee, late fee and so on.

Second, the following is the expenses of running credit card business:

  • Cost of capital. As mentioned above, 85% of the amount will not be paid off within the grace period. Credit card issuers need to finance and pay interest on it.

These funding sources include deposits and funds borrowed from other agencies. Remember how much your deposit interest rate is?

  • Loss. You may experience credit card fraud. According to the Nelson report, losses from global credit card and debit card fraud reached $21.84 billion during 2015.

These losses usually account for about 4% of the outstanding balance.

  • Service fee.

  • Transaction processing costs.

  • Marketing costs.

Here’s a picture from the Federal Reserve, which gives you an intuitive insight on the profitability of the credit card business.

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How much did the credit card business earn from you? A gold mine