Are We Indirectly Paying Credit Card Companies From Our Pocket For Using Credit Card Or Debit Card?

We Indirectly Paying Credit Card Companies From Our Pocket For Using Credit Card Or Debit Card
Credit Card is a very profitable business. In my previous article How do Credit Card companies like Master and VISA Card actually make money?, I have explained, how these credit card companies are making billions every year for processing the transactions only. People are going cashless and even the government is encouraging people to use credit or debit card to make the payment. This makes the credit card business more and more profitable. Every day, the number of credit card users are increasing due to the credit card’s marketing team’s effort.

Credit Card Business

Plastic Card i.e. Credit Card or Debit Card is very handy and it allows to go shopping without carrying cash with you. It is small, secured and looks fancy when you pay by using the card. Credit Card compies are trying very hard in selling these plastic cards to the customers. Many attractive shopping offers are raining and free stuff are waiting for you if you make the purchase by using the credit card. Have you ever wonder, how these companies are making a profit if you are paying only for the goods or services you bought?

In my previous article Credit Card Business Model I have explained the overall process of a successful credit card transaction. And, how merchant bears the overall loss and his discount is distributed between Acquiring Bank (Acquirer fees), Issuing Bank (Interchange Fees) and Payment Network (Network Fee).

Is Credit Card really good for everyone?

Credit Card could be very good as well as bad based on your style of using it. No doubt, there are a lot of offers, cashback and you get a timeframe of 50 days to repay your shopping bill. But, at the same time, it may trick to overspend and accidentally missing the bill payment which welcomes more fines and adds liability. Some high discount cards come with an annual fee whereas most of the common credit cards come lifetime free.

Also, banks are smart enough to find the person earning more and offer them cards with some special benefits which enforce the cardholder to spend more eventually. You can relate many things highlighting the bank’s idea to encourage people to swipe more and more if you observe closely. You can check out my previous article on The Advantages and the Disadvantages of using Credit Card.

Who exactly is paying the profit of Banks, Credit Card companies?

So, coming to the main point, how these banks and credit card companies are making money out of our credit card transaction? Is the merchant really bears the loses? If the merchant is making the loss by accepting credit card then why on earth they are accepting? They can simply deny the plastic card and ask for the cash.

Credit Card business or in other words the Plastic Card business was started by the smart people who were capable enough to make money without letting any involved party (Banks, Merchants and Payment Networks) in the loss.

Is the product, goods or services’ price already inflated (including the profit of credit card companies and banks)?

Recently, I went to a gold shop to buy some jewelry. While making the payment, I asked for some discount. The cashier was very quick in asking my mode of payment. He was ready to give some discount if I pay in cash. This is not the single incident which happened to me. I had experienced the same thing in many electronic shops as well except the well-reputed malls and franchise.

So, I realized, the price of the goods or the services could be available at a lower price but they are keeping it high as they are accepting credit card and they have to pay to credit card companies and banks. It’s a little tricky business, they just simply adding the transaction cost on all items to get the profit. Don’t you think, the price of the goods or the services are already inflated to accommodate the profit cut of the Acquiring Bank (Acquirer fees), Issuing Bank (Interchange Fees) and Payment Network (Network Fee)? If we pay by credit card, the profit will be shared with all parties involved in a successful payment transaction, but if you pay in cash, they shopkeeper will enjoy the whole profit.

In other words, the profit out of a successful credit card payment is coming from our i.e. Card Holder’s pocket only and we never realize. We run behind the lucrative offers promoted by the credit card companies and end up in spending for unwanted stuff. In reality, no business is making a loss but the customer. Technology advancement is not free and we have to pay even if we want or don’t want.

These things play an important role in the price inflation of goods and services in the city and developed countries. No question on, why these credit companies are putting a lot of money in marketing and providing so many offers.


In the end, I would like to add a small disclaimer that, this is totally my view based on what I have observed, however, I would love to see what you think on this credit card business. Please write your feedback in the comment section to enlighten the real facts. Lastly, use your Plastic Card i.e. Credit Card or Debit Card wisely.

You may also find my popular article on India’s RuPay Card Why RuPay Card is making payment gateways MasterCard and VISA unhappy – [Buzzing Report] . Do read let me know, what you feel.

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