The MDR is max up to 2% so how do banks give 5% CB on online transactions. What is the logic behind it how do they make profit? do networks pay fixed amount to bank for issuing their cards?
Finance
Credit Card
Bank
Some high value cc used to off 3.7% rewards and charge 4% mdr because they used to show businesses they bring High value customers like amex.
Don't know how sbi is managing this
Banks never earned from the customer who are active here on desidime. Even banks never preferred customers like us who spends considering returns only. Bank need customers who spend with blind eyes and also delayed payments. Bank loves those customers and from those customers banks earns only. But you know we are very few. Let me give an example, in my office we are around 100 people, almost 50% people use Credit Cards, among few let's say average of 3 always misses cc payment on time. I am the only one out of 50 who thinks this much of benifits before spending.
They make money from people who revolve credit(people who pay just the minimum due thinking that's enough). They will be charged interest anywhere from 30 to 40% p.a.
People buy a lot of stuff because of that 5% cb and then convert to emi, which is a solid 15 to 20% p.a.
These people form the base of the banks profits. Have you ever thought how these credit card issuers are always reporting profits in crores every year?
This is how. There is a whole crowd that lives on credit cards, buying things they really don't need, paying the bare minimum(most of which is interest, so piling on their debt). These people basically keep These companies afloat.
You make me feel very special. I won't spend even Rs 10 if its not worth it or required 😊
Wise use of credit card is spent till that extent which is in your bank.
Banks earn from merchant card swipe fees. That is why they keep giving you offers to spend. Also 5% cashback is really extreme example. Most cards give you 1% or less rewards. Even SBI cashback doesn't give 5% on everything and on many you get 0% but bank still get there merchant fees. Add to it other penalties and charges if you missed a payment. Scales are tilted in favour of bank.
To start with banks have multiple revenue streams unlike we think
For ex Co branded cards which give 5% like icici apay Amazon is partially borne by Amazon not just icici
Or manufacturer will share cut in case of no cost emi To push sales
In case of banks its a foot in the door strategy To acquire customers to up sell banking products
Banks get tax earnings by routing rewards as marketing cost
Of course there is fee income -interest charges -MDR
Then thier is float by way of rolling over short term money - customer transaction timilines in certain cases
then there is creation of money through thin air called M2 while licensed to create is monopoly
the list is extensive and as a standalone product banks may not be profitable at large but overall they mint money
And usual lifecycle of a bank to earn from a product is 7YRS by then there would be atleast one hype -boom and bust happening
so its a stratetgy of flywheel to maje money ....forget 5 % there were cards giving high double digit returns at large in boom cycle Just ended
marketing cost is tax exempt? what is M2. If cards give above 5% they wil definitely increase the fee proportionally. SBI has 1k fee not sure if all users utilize 5k CB per month. I mean they should spend 1 lakh per month.
thanks for the tag:) hehe many dimers explained the important points already, so didnt replied in here on my opinion things:)
well in my observation banks earns from credit card in the following ways
1) ANNUAL CHARGES
2) MDR CHARGES
3) SPECIAL TIE UPS WITH MERCHANTS giving you discount for their card with percentage of cut for every merchant sales
4) Interest i.e finance charges on revolving credit 50% p.a approx in an average
5) Processing fee for credit card loans and EMI conversion
6) Currency Conversion charges for international transactions
7).... lot more to think on
all this sound meager amount, but if only 1% to 5% use credit card efficiently and remaining 95% approx dont use credit card wisely and gets trapped in atleast one of the above charges, so thats how credit card companies survive with cash
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Banks never earned from the customer who are active here on desidime. Even banks never preferred customers like us who spends considering returns only. Bank need customers who spend with blind eyes and also delayed payments. Bank loves those customers and from those customers banks earns only. But you know we are very few. Let me give an example, in my office we are around 100 people, almost 50% people use Credit Cards, among few let's say average of 3 always misses cc payment on time. I am the only one out of 50 who thinks this much of benifits before spending.
They make money from people who revolve credit(people who pay just the minimum due thinking that's enough). They will be charged interest anywhere from 30 to 40% p.a.
People buy a lot of stuff because of that 5% cb and then convert to emi, which is a solid 15 to 20% p.a.
These people form the base of the banks profits. Have you ever thought how these credit card issuers are always reporting profits in crores every year?
This is how. There is a whole crowd that lives on credit cards, buying things they really don't need, paying the bare minimum(most of which is interest, so piling on their debt). These people basically keep These companies afloat.
They make money from people who revolve credit(people who pay just the minimum due thinking that's enough). They will be charged interest anywhere from 30 to 40% p.a.
People buy a lot of stuff because of that 5% cb and then convert to emi, which is a solid 15 to 20% p.a.
These people form the base of the banks profits. Have you ever thought how these credit card issuers are always reporting profits in crores every year?
This is how. There is a whole crowd that lives on credit cards, buying things they really don't need, paying the bare minimum(most of which is interest, so piling on their debt). These people basically keep These companies afloat.
You make me feel very special. I won't spend even Rs 10 if its not worth it or required 😊