Credit card companies make a lot of money. Most of us understand that using these pieces of plastic comes with a price tag, but how exactly do they make that money? The answer can vary dramatically from credit card to credit card but generally follows the same basic principals. In its simplest terms, credit card companies earn their revenue through both their customers (individuals and cardholders) and from businesses that process credit cards (merchants). There are three primary sources of income for credit card companies, all of which we will cover today.

Credit Card Interest is the Primary Revenue Source for Credit Card Companies
The credit card money-making machine which is the most profitable is likely the most well known: credit card interest income. These are the charges you might incur if you are late on a payment or if you do not pay the full balance on your account each month. The sad truth is that credit card companies quite literally bank on the fact that many of their customers will not or cannot pay their full amounts due. When this happens, the annual percentage rate (APR) is charged against the outstanding charges.
Nearly all credit card companies including Barclays, Visa, Capital One, and Discover, make the vast majority of their money from interest charges. A notable exception is American Express, which opts for less income through credit card interest while charging higher rates to merchants through interchange fees (more on this below).
Credit Card Fees and Incidental Charges
Another primary source of income for credit card companies is through various fees and charges incurred by cardholders. Typical credit card fees might include:
Annual membership fees: another staple of “higher-end” cards like American Express, annual fees are meant to offset a robust rewards package such as cash back, airline miles, and other benefits.
Balance transfer fees: some individuals opt to transfer existing debt from one card to another, often to pay a lesser interest rate. These transfers generally come with a balance transfer fee, but these fees may be waived or deferred in certain circumstances.
Late fees: in addition to interest charges, many card companies charge late fees when the cardholder fails to make the minimum payment(s) due each month. It should also be noted that late or missing payments are also likely to negatively impact the cardholder’s credit score.
Cash advance fees: for customers to use an ATM for cash withdrawals, they may be charged a cash advance fee. Cash advance fees are typically calculated as a percentage with a flat minimum per transaction

Credit Cards Charge Businesses per Transaction
Last but not least, credit card companies also charge businesses for processing credit card payments. These are known as interchange fees. Interchange fees are different depending on the credit card company but typically include both a flat price per transaction + a rate based on the purchase price. Businesses are responsible for paying these interchange fees through their merchant services provider.
It is important to note that while interchange fees are unavoidable for merchants who choose to accept credit cards, the rates and details of the fees may be negotiable. Business owners may want to work with a reputable merchant services provider to see if they can get the best deal possible when it comes to interchange and other credit card processing fees.
How to Avoid Losing Money to Credit Card Companies For Individuals
The best way for individuals to save money when using credit cards is to pay their full balance on time. Obviously, this is more easily said than done. The fact is that for credit cards with no annual fees, users can essentially use their credit cards for free so long as they are making their full payments. If you want or need to carry a credit card balance, shop around for cards with low APR and minimal fees.

How to Avoid Losing Money to Credit Card Companies For Businesses
While there are more complicated methods of saving money on interchange fees such as convenience fees and surcharges, the number one way to make sure your business is getting a fair deal is to work with a quality merchant service provider for your payment processing needs. Your merchant service provider can run through the various merchant account pricing models, discuss your needs, and even possibly negotiate better rates for your business.
True Merchant Helps Businesses Save Money on Credit Card Processing
While it is impossible to avoid processing fees, at True Merchant, we believe in making payment processing as straightforward as possible. That starts with one of our complimentary rate reviews for small businesses. This can be done for businesses just getting started or those who are looking for a change. One of our qualified payment processing professionals will work with you to identify what pricing options best fit your needs and to walk you through the processing fees, fee structure, and how we can best serve you!
Our experienced team offers a wide range of services including credit card payments, debit card payments, NFC payments, payment processing hardware, and much more. To learn more, give us a call or email today so we can discuss how exactly True Merchant can help your business!