Re: My Disney Visa Interest rates are through the roof!

[Default] Thus spake Rudeney <rudeney@xxxxxxxxxxxxxx>:

JackM wrote:
On Mon, 09 Feb 2009 10:17:19 -0600, Rudeney <rudeney@xxxxxxxxxxx>
wrote:

Actually, the credit card companies do not want people who pay their
balances in full every month. They make money on interest and fees,
so if you don't pay any interest and you always pay on time so you
don't get hit with any penalty fees, they aren't making a profit on you.

But they do make money. The credit card companies are not a charitable
organization. They charge a 3-4% fee for every transaction that is paid
by the merchant. They get that regardless of whether you intend to carry
a balance or pay it off in full.

Jack, there are at least two "middlemen" with their hand in that pot.
There will be the card label (i.e. Visa, MasterCard, Amex, Discover,
etc.) and then the processor, of which there are three or for major
companies, and then there are the vendors that sell the processing
service and equipment. The transaction fee that makes it back to the
actual card issuer is somewhere under 1%. Depending on the processing
companies involved, they may be able to charge extra for "rewards"
cards, but that usually just covers the reward (most are figured
internally at 1.5%).

There are three "middlemen". I pay a fee of 3%, plus $.25 per
transaction, plus $15 a month. But that goes to the card processor.
The card processor then skims some and pays it to the bank. Which
then skims some (most) and pays the remainder to the brand.
Essentially, from the way I understand the system, the processor gets
about 20% of the fee, plus $.15 of the transaction charge, and all of
the monthly fee. The bank gets 70% of the fee, plus $.10 of the
transaction charge. So, that leaves the brand with 10% of the fee. I
use percentages of the fee, since different merchant categories and
different merchants pay different rates. A high volume department
store pays a lower fee than I do. Amazingly, some airlines pay the
same fee, since they get more charge backs. SOBs pay as much as 12%
(sexually oriented business).


For example, let's say you have a non-rewards no-fee Visa card. You
spend $1,000/mo and pay it off in full each month. The actual "lender"
will make less than $100/year in processing fee revenue on your account.
Every peice of mail they send to you will cost about $1.00 (paper,
printing, and postage). If you don't do paperless billing, then that's
$12/year right there. if you mail a check, then they have to pay
someone to handle the payment, and that's about another $1.00, so now
they have spent $24 just to handle your payments. If you ever call for
customer service, lose your card, etc. now they spend even more and it's
not hard to be at a "zero profit" situation.

Fraud control eats up much of the potential profit a bank makes these
days. I've had my card replaced twice in the last four years due to
fraud. I've also had to have it replaced once due to the signature
strip rubbing off (which happens when you use it all the time).


Don't get me wrong - I'm not defending the industry, just stating how it
works. Basically, people who think they are great customers for paying
in full on-time every month may actually not be considered so great by
the lenders. The credit card industry is in business to make money, and
people who pay in full on-time each month are not contributing to
profits and in fact may even be an expense.

You know what we're called by the credit card industry, don't you. The
folks who pay the minimum amount are loved and chairished (and those
who miss an occasional payment are their best friends, at least until
they miss several in a row). But we're dead beats.


My advice for anyone who wants to pay in full is get an AMEX card.
Yes, it will cost you an annual fee, but you won't have to worry
about interest rates, preset limits, etc. They have fairly good
customer service and a good selection of services (awards programs,
extended warranties, rental car coverage, etc.).

And the difference between AmEx's business model and MasterCard or
Visa's is what? Nothing. <shrug>

While AMEX does offer some revolving debt options, their "charge card"
model is not based on revenue from interest and penalty fees. Instead,
it is based on revenue from the annual card member fee and a higher
transaction fee charged to retailers for accepting the card. They
welcome customers who pay in full on-time each month because that fits
their business model.

When BankAmericard first came out, it revoluntionized the "credit
card" industry. Prior to that, you had two types of cards. Charge
cards like Carte Blanche (card numbers beginning in 1), Diner's Club
(2) and American Express (3). Or, you had individual revolving credit
cards from large merchants, like Sears Roebuck or Montgomery Ward. But
BoA changed that entirely. They brought out a card that you could use
as credit "anywhere". What is now Visa (4) was soon followed by the
consortia card MasterCharge (5) (now Mastercard).

High end, elitist cards (1,2, and 3) made thier money by charging
exohbitant fees to the "merchants" who accepted them ("merchants" like
Tiffany's, Club 21, etc) and to the card holders. But when the credit
cards came out, they had to change thier business models a little.
Hence came the gold card, and then the platinum card and now the
diamond card (which should be called the unobtanium card).

It's all a rat race of fees and interest rates.
--

- dillon I am not invalid

Hi, I'm Michael Phelps and Olympic Gold isn't the only
Gold I'm thinking of.

Hi, I'm Michael Phelps and when I'm on Maui, Wowwie.

.

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