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How Credit Card Companies Make Money?

How Credit Card Companies Make Money?

Ok, so I know we are in a credit card processing blog, which is the other side of the industry of credit card companies. But, in order to understand credit card processing you need to understand how the entire industry works. Merchants tend to believe that credit card processors make a lot of money and seem to try to get the best rate with different companies advertising rates at 0.23%. Well, I am sorry for break it down to you fellows, but there is no such thing as free processing or 0.23% processing. There is 0.23% plus interchange processing though.

So, you have applied for the new Chase Freedom (or whatever other credit card) with no annual fee, 0% interest for 12 months, you are getting 1% cash back on all your purchases and you just don’t understand how Chase is just making money?

Chase makes money every single time you purchase anything with their card. Every time a customer uses a credit card, the credit card company makes money off that purchase. This money is charged to the merchant and referred to as interchange. Interchange can vary anywhere from 0.05% + $0.21 to 3.50% + $0.15 per transaction.

This is exactly why companies that claims to give you a really low rate (0.20%) is just lying to you, UNLESS they refer to interchange pricing. Interchange pricing simply means that the credit card processor charges a flat rate on top of interchange (say 0.25%) so if the interchange on a card is 0.05% + $0.21 with 0.25% rate, the cost to the merchant would be 0.30% + $0.21.

This method every time a customer is trying to get rewards from the credit card company, someone pays for it, the payers are the merchants that pay their credit card processing fees.