How do credit cards make money?

You may be wondering how they make money, with credit cards that accept postpay on customer credit, with free annual fees and a percentage refund on any payment. About this credit card profit, blogger Patrick McKinsey, who works for a payment service company Stripe, explains and draws attention.

According to him, there are four methods of earning profits from excellent users who do not normally cheat on credit cards: interest, merchant fees, user-side fees, and marketing.

interest first. Some credit card payment methods, such as revolving payments and installment payments, take interest from borrowing. Consumers do not appreciate interest, but according to McKinsey, it is the ultimate service that realizes three important tasks for sellers to choose the company and spend more interest than competing competitors.

Before the advent of credit cards, retailers had to prepare books for each counterparty, and in addition to cumbersome office management and accounting, it was necessary to manually collect payments. Credit cards have not only removed the seeds of this headache, but also allow counterparties to repay the loan, providing ample returns for retailers with little equity capital.

Second, merchant fees. The word “cashless society” exists. There are many people who prefer payment methods such as credit cards or electronic money rather than bills or coins. There are a certain number of people who base their judgment on whether a credit card can be used when deciding which store to go to. Of course, in Korea, it is almost 100% possible.

In any case, since the sign of a credit card support store is expected to attract more customers, credit card companies are collecting a fee called a merchant fee from the merchant. This merchant fee is also paid to payment processing companies, credit card handling banks, and credit card network affiliated companies, but most of them are paid to credit card companies.

In overseas countries, the upper limit of franchise fees is set by law. However, in places like Japan, there is no upper limit set by law. McKinsey cites the case of Japan, saying that there is no upper limit set by law in Japan, but financial institutions are strangely limiting merchant fees to 1%. said to be becoming

Third, user-side fees. There are roughly two types of fees on the side of credit card users: annual fee, installment payment, and revolving payment fee. Among them, there are two types of fees for payment in installments and reballing fees: exceeding the limit and late damages. However, in recent years, consumers can easily understand their payment status by using mobile apps or automatic voice response systems. The percentage of total revenue is declining as there is pressure from regulators to cut installment payments and reballing payment fees.

Next is marketing. Credit card companies carry out various campaigns. When used well, this campaign is proving to lead to customer acquisition. The case that McKinsey cited as a good example of a credit card company profiting from marketing is the case of mobile payment service Square. Square is developing a personal money transfer app called Cash App in the UK and the US. The Cash App runs regular campaigns such as a 10% discount when used at a grocery store and a 5% discount when used at an adidas online shop.

The grocery store case is to get customers into the habit of using Square, and the Adidas case can be seen as paying Square for the campaign. Credit card issuers, like Google and Facebook, say they can have a decisive influence on actual purchasing behavior. Related information can be found here.