kramer (02/18/83)
Recently there have been a number of articles in the papers describing how the banks are losing money on credit cards. They claim that money is made on interest charges and that not enough of us pay interest. This justifies a per transaction charge to credit card users. No mention is ever made of the 3 to 5 % that the store pays on each credit card transaction. Where does this money go? Is someone trying to pull wool over our eyes? Why don't the newspapers mention this extra money the banks get?
pfps (02/18/83)
The 3-5% that the banks charge goes into several things 1 - processing costs (supposed to be over 50 cents per transaction) 2 - interest during the float time (which is about 1 1/2 months) 3 - covering fraud and theft loses. Initially the 3-5% was enough to cover these costs but lately people have been using credit cards for smaller purchases, interest rates have gone up, and people have been paying their bills on time. The result of all these has been to increase the costs of credit cards while decreasing the lucrative interest charges that the banks used to get. So the banks, which used to make a lot of money from their credit cards, now aren't. All this should not be taken as a defense of the banks. They all thought that they could make easy money on credit cards and thus really pushed them and made them very attractive to customers. Now that the bloom is off credit card profits the banks are making cards harder to get, are thinking of having transaction or user fees, and are probably regretting that they made credit cards so attractive to users. Personally I think that credit cards are not a good idea. Even though I use them in the approved manner (i.e. never paying interest charges) I don't like the idea that they are really subsidized by cash customers (because of the 3-5% charges). I would prefer a debit card that had no up-front charges to the vendor and was paid for by transaction fees (just like cheques).