Credit Card: Credit card is available without any fee, know how banks and companies earn money...
Many of you will have a credit card and those who do not have it must be thinking of getting a credit card as soon as possible. Every day you must be getting a call from some bank or the other to get a credit card. When agents call people to give them credit cards, they tell them all its benefits. Some even say that the card is being given absolutely free, on which you will get as many reward points as you spend on it. Many banks do not even charge annual charges on their credit cards. That means getting a free card, on which no fees are charged, on top of that, banks are also giving reward points, which are also benefiting the customers. Some premium cards even provide airport lounge access. Now the question arises that when credit card companies are giving everything for free, then how do they earn?
This is how credit card companies earn money
Credit card companies work like a lending business. Credit means loan. That means one thing is certain that these companies would also be earning some income from interest. Let us tell you that apart from interest, there are many sources of income of credit card companies. Let us know how a credit card company earns money.
Interest earns well
Credit card companies earn the most from interest. There are many such people who are unable to repay their credit card dues and interest is charged on it. The interest charged on credit cards can also range between 30 percent to 50 percent. Many times people buy goods by paying some interest on EMI, from which they also earn. However, in case of purchasing goods on EMI, the interest rates remain between 10-20 percent only.
There are many such people who withdraw cash from credit cards and they also have to pay huge interest. Now you might be wondering who would be withdrawing cash from the credit card, but you may be surprised to know that according to the data of Reserve Bank of India, from April last year to April this year, people have withdrawn Rs 300-400 crore every month.
Apart from this, many credit card companies also provide loans to people. She earns interest on this loan. This interest ranges from 12-24 percent. Credit card users sometimes need a loan, in such a situation the credit card company earns money in this way also.
Another way of earning for credit card companies is interchange income. Whenever a customer makes a purchase with a credit card, a merchant discount rate i.e. MDR fee is charged on the merchant. This fee ranges between 1-3 percent of the transaction value. MDR fees are divided between several parties, which include the payment ecosystem, the bank processing the card transaction and the card network. In this, an interchange fee is imposed by the card issuing company, so it forms the largest part of the total MDR.
Many credit card companies also charge a membership fee from their customers. Some banks return this fee to the customers after a certain limit of transactions, but some banks do not do so. Many banks also call it annual fee. In such a situation, membership fees are also a part of the income of credit card companies. The more benefits there are on a credit card, the higher the fees charged on it.
Some banks also charge a joining fee from customers for getting a credit card. This is also a kind of income for them. However, there are very few banks that charge joining fees, most of the banks either do not charge joining fees or give benefits equal to that fee to the customers at the very beginning.
Other ways of earning
Many credit card companies earn money in many other ways. These companies also charge balance transfer fees, late payment fees, cash advance fees, foreign transaction fees and some other charges.
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