How do credit cards provide 60 day interest free loan with only 0.3% charge to the merchants? I can see low interchange rates for debit cards like the US the interchange for debit card for major banks is capped at 0.05%.
You can doubt it if you want, but the Credit Reference Agencies make a big fraction of their money because this is in fact possible.
Say I'm Big Bank, and I want to launch a card I'm calling "Bonus Credit". I want to target customers who mostly will pay me, eventually, but aren't so flush that they can pay their full balance every month (e.g. they buy their summer break in January, pay it off over the next 3-4 months). I call Jumbo National Credit and I offer them £25 per sign-up if they give me customers who have no super-negative credit events in the past say, 12 months but are say 75-95% on recent payment history. Jumbo present this as a "Pre-qualified" instant Credit Card option for customers who match the profile, on their free web site. Click now, you are guaranteed to be accepted. Customers don't even realise they're reading an advert.
You may have noticed that although 30 years ago "Credit score" was something you needed to go out of your way to discover, today you can get your score on a web site - sign up today to see it instantly. Why are these companies telling you something that was once an important trade secret ? Because these sites are now effectively marketing for 3rd party credit products. AIUI Experian invented this, I worked with people who were in a small rogue group at Experian which proposed instead of fighting the government to keep it secret they should turn access into a revenue source, they were laughed at internally more or less up until the record profits rolled in and then suddenly it was champagne and bonuses.
No, not in Germany. I still believe revolving credit cards aren't something targeted at people who'll miss paying their balance in full in most of continental Europe, and issuers can't really base their profitability on that alone.
Ironically enough that's why a company like Klarna became so big over here, the whole "buy now pay later" concept is completely new to most low-income customers.
There is often a small annual fee connected with having a credit card (I think I pay on the order of $25 a year). Also effective interest rates are in the 15-25% range for most cards if you don't pay it off in full, which I'm sure quickly adds up.
0.3% over 60 days (in practice more like 15 to 45, only commercial cards have longer billing cycles) was really not that bad during a decade of near zero interest rates.
And now that banks will finally make a bit more money on mortgages and other kinds of loans, I assume they don't mind the increasing cost of their customers' credit balance.
There are lots of other ways credit card companies can make money:
- Higher interchange fees when you purchase something outside of the EEA
- Currency conversion when you buy something not in EUR
- High interest payments when you do not pay off your balance in full on time
On average, it will also not be a 60 day interest free loan: the "average" transaction will happen in the middle of the billing cycle, so that gives you 15 days until the invoice is sent, and many people I know pay their invoices much earlier than after the 30 days payment term.
Which kind of reminds me of SaaS products that offer a free tier to sell you on the premium subscriptions