How is cashback profitable to credit card companies?
You might have come across multiple benefits of using a credit card relative to a debit card. There are generally more cash backs and offers on credit cards. Additionally, you can use the money interest-free for around 30–50 days. After giving so many incentives how are these credit card companies profitable?
Ever wondered what does make them want to provide incentives in the first place? To attract us more towards credit cards. Further, when we transact through credit cards the transaction fees paid by the merchant are almost double the transaction fees on the debit cards. Transaction fees are one of the ways for credit card companies to make money.
Moreover, when we are late by the stipulated time frame they start charging us interest and late fees which is way higher. 43% of credit cardholders in the US missed the stipulated time frame to pay back the money in 2020. The percentage has been rising each year. It was 37 in 2019.
We get habituated to transact through credit cards because all of us like free money. Ironically, there is nothing free in the digital world. After getting habituated, we often end up using credit cards for each transaction and once we get used to the delayed payments we end up creating a huge pit for ourselves. You might be saying there are mobile applications now which remind us to pay the credit card bills timely. There are such mobile applications across the globe still almost 1 in 2 people end up paying interest to credit card companies in the US market. If you think you are clever enough and can make the payment timely, you should really use credit cards as you will have more benefits.
Until then… use wisely!
Would love to know your thoughts on using credit cards…!
