How Credit Card Companies Make Money - What you may not know

If you are a consumer then chances are you have a credit card account, or at least have had a credit card account in the past.

Do you know how credit card companies make money? 


Do you know why credit card companies are so willing to lend via unsecured revolving accounts?


Most people would guess credit card companies such as Visa, Master Card, Discover, and American Express make their huge profits by charging consumer borrowers interest on the money they borrow via their credit card.

Most people are wrong.


Though some credit card companies lend some of their own money or at least make money off the interest that is charged this typically represents a insignificant portion of their overall revenue. This information may come as quite a surprise. But it is more true then most can imagine.

Common Credit Card Company Revenue Streams and Origins


Transaction Commissions

Transaction commissions are the bread and butter of the credit card industry.

When you pull out that Visa card and make a purchase the merchant pays a portion of the money charged to Visa or whatever credit card or bank applicable. The exact percentage of the charge that is handed over to the credit card company variable. This rate is different from card company to card company and from merchant to merchant.

Small merchants pay more. Big merchants pay less. Exclusive and smaller credit card brands charge more. Larger and bigger credit card companies charge less.

For instance McDonald's pays a small fraction of what a "Mom and Pop" store would have to pay. Having said that the typical merchant is going to end up paying 1%-7% depending on the card.

American Express and Discover typically charge higher rates then the larger companies such as Visa and Master Card.


Borrower Fee's

Many credit card companies charge annual maintenance fee's, late fee's, and whatever other fee that some guy wearing a tie and a rolex dreams up. These fee's are typically 10 - 100 bucks a year per card. That may not sound like so much but take 50 bucks and multiply it by say 50 million accounts. Now we are talking real money.

Advertising and Marketing Revenues

Information. The commodity of all commodities. Credit card companies have found themselves knee deep in consumer information. What population of Visa card holders have made at least one monthly online purchase for the last nine  months? Well you can most likely obtain some pretty accurate answers to that question if you are willing to pay for it. Even if a buyer of such information is unable to buy that info they will still be able to reap the benefits of knowing the answer.

What do I mean by that?

Perhaps the buyer is able to place an email blast to all those card holders, or a direct mailing campaign, or whatever. For a fee per mail-out or phone number or maybe a part of the revenue generated from the marketing list. the possibilities are limitless.

Cross Selling Related Products

Protect your credit score. Buy life insurance. The offers a consumer gets are limitless. many of these offers are through one of your existing credit card companies. these large cross selling efforts have a similar macro effect as does the annual maintenance fee. If a card issuer is able to generate an average of 18 dollars per credit account via other products and services then these companies are able to generate billions an additional revenue.

These same tactics work great for other outside company products and an affiliate program.

So there you have it. Now you know that your credit card company is not focusing on that interest rate they are focusing on transaction volume, marketing dollars, and consumer information.

Sleep well.

Snoopy and Charlie Brown Sold Out - 175 Million Peanuts

Charles Schulz the creator of Peanuts and the lovable Charlie Brown and his dog Snoopy has managed to make waves across the branding and advertising world despite being dead.

Forgive the blunt language, I love the cartoon classic, I even contribute to the 2 billion a year in retail sales the trade mark and brand pump out on an annual basis (not for me my pops can not get enough of them {teachers}).







The brass tax of the deal boils down to the following:

• The Charles Schulz Family and EW Scrips have sold the lovable bunch for 175 million dollars.
• The Buyers of Peanuts is a firm known as Iconix Brand Group..Iconix Brand Group will only have a 80% share and the schulz family will keep a 20% stake plus some royalties.
• The Iconix Brand Group is saying that they expect 75 million a year in royalties. This would thus seem like a pretty good deal. In three years they should actually profit from the deal.
• The deal however gets better they are also getting Dilbert and Fancy Nancy in the deal. Not sure on all the details or implications but that can't hurt.

Well I can't say I am surprised by the news. Don't get me wrong two years ago I would have been flabbergasted but it seems that selling off quality Brand names is the trend. This is apparently a symptom of financial hardship and economic crisis.

If you are not familiar with the new trend deal making involving the selling of brands for reasonably cheap prices then you may want to read up on the Marvel Comics Sale to Disney. Another great one that was for sale but no one purchased was the DOW Jones Industrial Average. I still can't believe they were considering that though really the buyer would have lost out because the index was for sale not the name but how do you reverse brand something like that?