How do Credit Card Companies Make Money? We have 5 Proven Ways

Do you ever ride on the wings of curiosity and allow yourself to wonder just how credit card companies make their monies?! I wonder nearly every time.

I often even worry that these companies put so much “technovation” (technology + innovation) into that piece of tech-awesomeness and probably make little or no significant profit.

Well-well, my discoveries blew my mind! You’re in for a shocker too!

Credit card companies, like every profit-making company, do not exist for charity, not them! They actually roll in profits in ‘skyscrapers’. Stay with me, please.

In 2019 alone, U.S. credit card issuers pulled-in almost $180 billion in interest charges and fees. These companies’ primary sources of revenue are interest charges deducted from users.

This knowledge will expose you to the profit margin of credit card companies and arm you with information to decide whether or not you will save more money in your pocket or start a credit card company in the future.

Do Credit Cards Cost Much to Manufacture?

Basically, it costs Credit Card Issuing Companies as little as 10 cents each for simple, traditional plastic cards, which is about $1 to $2 each.

This amount goes for cards enabled with EMV smart chips and contactless payment systems (where the card is just waved over a terminal).

However, it cost a lot more to manufacture prestige cards made of metal or other manufacturing materials.

How Much Money do Credit Card Companies Make a Year?

Credit card companies make high profits from cardholders like all of us in varying and astounding ways.

More so, these interest rates keep growing astoundingly as the years advance.

In 2016, R.K. Hammer research firm reported that that credit card fee income rose by 6% year over year. It was even expected to spring to an impressive 6.5% in 2017, as Motley Fool stated in its report.

See a breakdown of how cards generated $163 billion in 2016 through fees and interest:

  • Interest income: $63.4 billion
  • Interchange income: $42.4 billion
  • Cash advance fees: $26.6 billion
  • Annual fees: $12.5 billion
  • Penalty fees: $12 billion
  • Enhancement income: $6.3 billion

This analysis should give you a basic idea of the estimated annual revenue of credit card companies.

How do Credit Card Companies Make Money on their Cards?

For every time you make purchases on your credit card, you increase the revenue base of credit cards. I will help you understand just how this works.

Every Credit Card Company generates revenue in varying ways. Whether as Networks or Issuers.

While Networks characteristically make their money from the vendors who pay a fee to accept electronic payments from credit cards; Issuers generate income from the consumer through interest and fees charged them according to their credit card capacity.

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Here is how a 2018 Federal Reserve System report couched a notable point, “although profitability for the large credit card banks has risen and fallen over the years, credit card earnings have almost always been higher than returns on all commercial bank activities.”

In 2018 still, the World Bank report recorded that the size of European Hungary’s economy totalled nearly $160 billion. This amazing figure is hugely traceable to interest generated from credit card companies.

Further, according to the Federal Reserve, Issuers of all-purpose credit cards secured a rewarding portion of the approximately $3.5 trillion in charges and cash advances totalled in 2017.

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5 Proven Ways Credit Card Companies Make Money

We are ready to explore ways these credit card companies generate their income. See below;

1. Interest

Interest typically makes up a huge chunk of revenue for credit card issuers. John Cabell, director of banking and payments intelligence at market research company J.D. Power, explains that credit card issuers reel in this revenue when cardholders push a balance from one month to the next.

This means that if you don’t pay off your entire balance each month, the credit card issuer typically charges interest until you’ve wiped out the remaining balance.

As of July 1, 2020, the average interest rate (known as an annual percentage rate, or APR) on new credit card offers stood at 16.04%, according to data.
“Consumers should know that interest on unpaid balances is a significant source of issuers’ revenue,” Cabell says. “That is important because consumers ultimately control their spending in this area.

By knowing their billing … dates and timing purchases and recurring payments carefully, consumers can ensure they can pay their balance in full more often and avoid paying interest.”

However, the most recent J.D. Power study of credit card satisfaction shows 54% of credit card holders grasp little to none of the terms for their credit cards. So, if you fall into that group, you might cough up more in interest than you could or should be.

Keep in mind that not all credit card APRs are created equal. A card might offer one rate for purchase, another rate for a balance transfer, yet another rate for a cash advance and a special introductory rate (perhaps 0%) for new purchases or balance transfers. Even just one late payment can trigger a higher interest rate if it’s at least 60 days overdue.

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2. Cash Advance Fees

When you borrow money using the credit line of your credit card, you typically pay interest if a balance remains on your card from month to month. On top of that, you often pay what’s called a cash advance fee.

U.S. credit card issuers raked in almost $17.3 billion from cash advance fees in 20184, according to R.K. Hammer, a credit card consulting firm.

Interest rates on cash advances are higher than those for purchases and balance transfers. Data compiled in April 2020 by found that the average APR for cash advances is 24.8%, compared with an average of 19.84% for purchases. A common cash advance fee is 5% of the amount you’re borrowing or a flat $10, whichever is greater.

A cash advance usually comes as:
• An ATM withdrawal.
• A blank paper check sent to you by a credit card issuer that you then can use to cover a medical bill, for example, or pay off higher-interest debt.

3. Balance Transfer Fees

The idea behind a balance transfer is simple: Switch all or part of a balance from a higher-interest credit card to a lower-interest credit card in order to save money.

Sometimes, though, those transfers come at a cost – the cost of balance transfer fees.
U.S. credit card holders racked up $54 billion in balance transfers in 20185, according to an August 2019 report from the federal Consumer Financial Protection Bureau. The average fee on those balance transfers was 2.8%, the report says.

No matter the percentage, card issuers reap millions and millions of dollars each month from balance transfer fees. And it might stack those fees on top of a balance transfer interest rate. Fortunately, a 0% APR accompanies some balance transfer offers.

4. Annual Fees

Some credit card issuers assess an annual fee for the privilege of carrying around one of their cards.

Often, those cards supply sign-up bonuses along with perks like access to airport lounges, exclusive discounts at hotels or monthly credits for ride-sharing services. If a savvy cardholder plays the game right, the value of those perks can offset the annual fee, which can exceed $500.

Cabell of J.D. Power said his firm’s research indicates nearly one-fourth of U.S. credit card holders pay annual fees.

In 2018, annual fees averaged roughly $80 per card, according to the Consumer Financial Protection Bureau report5. The bureau noted that this amount has jumped in recent years due to the rise of “richer” rewards cards that charge higher annual fees. The share of rewards cards with annual fees stood at 18% in 2018, the report says.

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“Rewards cards typically carry significantly higher annual fees than non-rewards cards. In part, increased demand from cardholders for high-annual-fee rewards cards with high benefits is driving the increased fee revenues for rewards cards,” according to the report.

5. Late Fees

Miss a payment by the due date? A credit card issuer might hit you with a late fee.
The maximum allowed under federal law for a first-time late payment is $29. Another late payment within six months can lead to a fee as high as $40.

Overall, credit card issuers collected $11 billion in late fees in 2018, according to data from R.K. Hammer.

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Foreign Transaction Fees

Additionally; another way Credit card companies make their monies are through foreign transactional fees.

When you travel to another country, a foreign transaction fee might ding you when you pull out a credit card to pay for a hotel room, a restaurant meal or a souvenir purchase. Close to half of credit cards charge foreign transaction fees, typically up to 3%.

Interchange Fees

Further still, I think you should also note that these companies make money from interchange fees.

For every purchase made with a credit card, a merchant must pay a small percentage of the purchase amount to process the transaction (around 2% on average).

Part of that money goes to the credit card issuer. Some retailers provide a discount if you pay for goods or services with cash to avoid the use of credit cards and, in turn, avoid interchange fees, Cabell of J.D. Power says.


Knowledge about how credit card companies make their money can enable you to decide to start a credit card company in the near future.

We all agree that anyone can attain anything under the sun you will need every ounce of diligence and determination to achieve whatever you dare achieve.

On the other hand, this piece of priceless info can also enable you to save more money in your pockets.

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