Want to know how much of a cash cow credit cards are for banks?

I worked for a company that processed bank card transactions for big banks that issue credit cards. I was a technical writer, had to document the mainframe computer system they used. In the course of two years of traning to go along with it, I learned a lot of eye-opening things about the CC industry, but the biggest thing was how much of a "cash cow" it is (it was actually described to me by some bankers that way).

Say card issuer has 300,000 accounts. Say 75% of those cardholders carry a balance each month. (That's a conservative estimate, it's actually higher than that.) Say the average balance is around $2500.

The finance charges for those 225,000 accounts carrying an average balance of $2500 might be $21 a month. (I'm being conservative on that, too, this is the only time I ever describe myself that way, LOL! I'm also basing this on a pretty typical APR.)

225,000 x $21 = $ 4,725,000 PER MONTH.

Now, let's say 25% of the 300,000 accounts are regularly paid late. That's a $25 late fee.

75,000 accounts x $25 = $ 1,875,000 PER MONTH.

Let's also assume 25% of the 300,000 accounts are over the limit. That's a $25 overlimit fee.

75,000 accounts x $25 = $ 1,875,000 PER MONTH.

That's a total of $ 8,475,000 per month.

Now, the costs to do business: they include the actual card (called the "plastic"), the cost to manufacture the plastic (all the plastic stuff is outsourced, too, so they don't have to pay for the equipment and all that), the cost to pay the outsourced company that manages the call center and all accounting and billing functions, paying a third party collection company, and miscellaneous costs, to include write-offs (debts unpaid even after it goes to collections, etc.), payroll, benefits, etc.

I was told that the cost of doing business per month was only, on average, about 20% of what the cards brought in. (Remember I was being conservative in my calculations of what they brought in.)

So....20% of $ 8,475,000 is $ 1,695,000. Subtract that out to get true profit: $ 6,780,000. Let me remind you that is PER MONTH.

The company I was working for (they used us to manufacture and emboss plastics, manage the mainframe accounting and billing computer system, and for call center purposes--you probably are not actually calling Compass Bank when you call the 1-800 number on the back of your card) was ROLLING in it.

I was sent on business trips all over and put up in the swankiest hotels. No sharing rooms, either. Rental cars, plane tickets, no problem. Dinner tabs of $500 and up, $40 a glass brandy and scotch, nothing was out of bounds. Want to get into that minibar? Sure, go ahead, it'll just go on your bill. We bar hopped with corporate credit cards and no one seemed to give a RIP how much money was put on the tab. I was shocked to hear after one particular trip that the total tab for ONE night of bar hopping for four employees was $1200. How much liquor can four people drink? But it wasn't a problem, apparently.

And I didn't TOUCH the other side of the cash cow--merchant services (merchants that accept your credit card).

Think about how much fucking money they are making next time you feel tempted to whip out your credit card. I wrote this because of that fucked up bankruptcy bill that I hope won't pass.

Doesn't the card issuer take a percentage of every sale?

Isn't that why your bank was so generous about sending you that Visa check card?

They charge merchants a percentage (is it 2 or 3% nowdays?) for EACH transaction. So it comes out of the merchant side, but any bank that is issuing on the consumer side is also doing business on the merchant side.

So that most assuredly adds tons of money to the profit margin. The shareholders are NOT going hungry, I can tell you that.

to my Visa/MC processor and then if a AMEX or Discover come thru, they tack on an additional 5%

it's a racket all right, and my younger customers swipe that damned check card for $1.25 three or four times a DAY

sigh

quote.....
"Consumer Federation of America estimated that U.S. banks made more than $5 billion a year in bounced check charges and that bounced check fees are anywhere from 11 to 32 times higher than the actual cost to the bank." (Sacramento Bee, "Bad Checks are Expensive", Sept, 1999)
-----end quote....
I make no money. Get paid every other week. I have gotten caught using my debit card or an automatci debit for my ISP and missed my automatic payroll deposit by one day for a $5 debit..It COST ME $32! If that isn't usery! I 'borrowed' $5 for 24 hours and it cost me OVER 600 %

I am with US Bank.......
http://www.frenzieddaddy.com/index.php?p=220

They have the money, they just don't credit YOU with the money because they want to earn money on YOUR money before they let you have it, and if you try to use YOUR money before they're done earning money against it, they charge YOU!

Legalized theft, as I said. Banks are rich and the rich own the government.

money. You may have deposited a valid US Treasury check, but they won't have the actual funds until the settlement date. Those depend on where your bank is, what bank the check's drawn on, time of day of the transaction, etc.

I can tell you, I have never had any banks actions this radical, but then I won't deal with the big box banks either. They really only want their business from the major corporate clients, and the individual is like a pesky gnat.

Check some local State banks near you. They have many more services for the indidual customer, really want your business, and can do everything for you that the big box can.

BTW, it may be convenient for you, but you should really think about why you're using that debit card. Another name for them is "Fake Credit Card". At the store, they look like a credit card, but you have absolutely NO protection at all! I suggest using a real credit card, and paying off the balance when you get your bill each month. If you have a problem with anything us bought, you have the protection by the credit card company, and if you prove your case, they will do acharge back and credit your bill. With the fake cr. card, the $$ is instantly gone!

If it is my mistake I don't mind the fine...BUT $32 for 24 hours on a small overdraft? Do the math for me....what is that annualized?

The banks wrote their software so that automatic payments are debited before payroll deposits are credited so that if you set up automatic payments on the day you should be getting paid, you bounce the payment and roll up a bad check fee!

They claim to post all deposits before the debits...I think it's true but wont swear to it...
Now I have a better one for you.I have posted before......Follow this

I went to the day spa..It cost me $98....I tipped in cash but ran my debit card for the $98.......They merchant account automatically adds 20%.....When it clears V/MC 3 days later it is for the correct amt..but for 3 days I am w/o that $20 and if I needed the money in my account to clear a check or debit..I would be shit out of luck...That I am sure of..I ask US BANK!

payment of 2 days , despite all other payments being on time. I was screaming at them over the phone, earlier, after they refused to explain how the interest might be lowered again, refused to help or offer any information in any way...

MOST people will pay their mortgage on time and starve if they have to...BUT if you are late on ANY monthly charge ALL interests rates go up. They now consider you a bad credit risk.

I 'forgot' I was out of checks.Went to write a check for my monthly rent and had none, so I went to the bank and got a money order...FOR $4.00. Why when I can get one from 7-11 for 79 cents?

I've run out of checks before. The bank gave me a check that only had the bank number on it, and I had to fill in my account number, but it was a valid check, and it was free.

$4 for a money order? That's crazy talk. Did they understand the problem was that you were out of checks? If so, I'd take my account elsewhere and write a courteous note to the president of the bank telling why.

The conservation movement is a breeding ground of communists
and other subversives. We intend to clean them out,
even if it means rounding up every birdwatcher in the country.
--John Mitchell, US Attorney General 1969-72

I nevr heard of un-imprinted checks..thanks for the info

exorbitant interest rates forever.

I filed for a student loan forebearance (never missed or was late with a credit card bill) and they still jacked me up to 24%. It never went down even after I found a job and resumed paying the student loan.

It's apparently in the very very very small print.

they're all bloodsucking leeches, all of them. Wonder what it will take for their stranglehold on America's pocketbooks to break loose at last?

they hate that. Also, never tease a weasel.
Ask to speak to a manager, or tell them you are closing your account and calling Capital One (or some such). Are you not getting two or three offers a week in the mail? I am, perhaps because I am a home-owner. Pick one of them up before you call customer service, and follow through on it if they do not help. Revenge should be more satisfying than a little yelling at some flunky. If you are not usually late, many businesses will reverse a late fee.

With the free market economy, yes, HELL YES usury is LEGAL today. Twasn't always like that. There were caps and rules, oversight etc etc..

ReRegulation IS THE ONLY way to bring life back into balance. We CANNOT allow companies to run amok charging any old price/rates they like. Rein in all business from A to Z; Wall street/stocks and bonds to utility companies.

What business is getting away with is unethical in the first place, criminal at the very least!!

This country created an all consuming, ever progressive monster in deregulation and free market.

For those of you with a religious belief, did you know it was illegal to charge interest per old testament historical Israel??? Quite a hefty amount of language was dedicated to fair "scales" and practices ie: usury.......

first time logging on to DU today....trying to not be so damn addicted...

Banks are making plenty of cash on the ATM transaction fees... profits that were non-existent in the banking industry 15 years ago.

I left out a lot of other money makers for banks AND the fact that many are now charging $29 for overlimit and late fees instead of $20 (raise your hand of you can remember when they were $15---meeeee).

in Ogden, Utah in 1986. I also used them in Huron, SD (podunk city) at about the same time. There was no fee at the time, but the machine was from the same bank where I had my account.

edit: so I think you should make that 25 years, just to be safe.

you...so if you are trying to get a job to get out of a financial bind, you are doubley screwed.
If you have a shakey credit history, you cannot even get a decent job to try to get yourself out of the financial bind.
Talk about a CATCH-22.
Thanks George W. Bush, MBNA, your big bank donators in Delaware, Repukes, and last, but not least, Senator Joe Biden.

This has never happened to me being in sales.BUT it's happened to many of my friends. Now I can undersatnd if you have access to money....BUT most jobs you don't. What the hell does your credit have to do with a job......and CAR INSURANCE???????

If there are 300,000 accounts with $2500 a piece, that is $750,000,000 that the credit card company has outstanding that they cannot use. They cannot invest it and make interest on it. Don't you have to place that on the debit side of their balance sheet to make a fair assesment? If they could make 5% interest on that money it would amount to 37.5 million dollars that you must subtract from the amount they take in yearly. It's still a huge amount of profit, but not quite as big as it seems without taking that into account.

I'm not an accountant (I can barely add, subtract, multiply, and divide) so maybe I'm mistaken.

plans...I mean scams.

Now, first of all,I'm not talking about people that have fallen on hard times thru medical, disability, lack of decent education system, etc.
However, do you realize that before the 1960's, there were hardly any: 1) credit cards or 2) mortgages? Frontline did a great story on this a few months ago (primarily credit cards) and Dave Ramsey, one of the hot financial speakers and radio talk show hosts, talks about this constantly.
Somewhere, marketing whizzes in the banking industry, in cahoots with most non-essential industries (entertainment, luxury, etc), started successfully beating into the american consumer's heads that each family needs two new cars in their 3-car garage every couple of years, we need homes that we can't afford (ie, instead of just saving up to "buy" a modest home, we now are "entitled" to "lease-to-own" a larger home with a 30-year mortgage), each of our kids need three new toys a week, we all need to eat out 3 times a week, and we all need to make an every-other-day trip to walmart to buy lots of stuff we don't need.
Credit cards exist primarily to make up the difference between what we take in, and what we spend. I'm amazed that people just seem to have the mind set that credit cards are just free money. No wonder americans keep voting for republicans who don't think we should ever have to pay for all of the things we want provided for us by the government.

and ever-increasing consumption. Our government and media advertise this as our national mantra and most of us, unfortunately, buy the spiel. Unfortunately, it will take an economic crisis for us to snap out of this pattern.

they still make a ton of money even if lots of people default and/or declare bankruptcy. It doesn't make a dent in their profits.

Just to relate a personal story, I got fed up with the late fees and sent a check to close out one account sans the late fee because I refused to pay it.
They kept sending me bills compounding their $20 late fee every month and adding anoher $20 dollar late fee. FInally, atfer a year when it got up to $120 (plus interest) and they sicked a collection agency after me I explained to the CA that it was all phony accounting and none of it represened any sort of purchase by me.
They finally gave up although it put me in the shitter with the credit raters. Anyway, these CC people are EVIL!