How Do Credit Card Companies Make Money?

Credit cards have gained much popularity in India over the last few years. Public sector banks as well as private banking institutions have come forward to launch a host of credit cards suiting customers with different types of needs. HDFC Credit Cards and SBI Card are the two companies with the largest market share. While banks are ready to offer you with a small loan in the form of credit cards, have you ever wondered how these banking institutions make money from these ventures?

The three main ways how card issuers make money is through the annual fee of the card, interest charged on late payment, penalties on skipping EMIs, etc. At the same time, they also earn from the businesses that accept these cards. Businesses are required to pay transaction fees to the banks which also makes up for significant earning of the card issuer banks.

But before we dig deeper into how they make money, let us first understand the term 'Credit Card Companies'. It is easy to get confused between credit card issuers and credit card networks. An issuer is the bank or financial institution from which you take the card. You are taking a loan from the card issuer and paying back to them. A credit card issuing company is usually a bank. On the other hand, credit card network refers to companies that process the transaction. Currently, there are three major networks in India- VISA, Master Card and RuPay. Apart from these, American Express and Discover cards can also be found.

So, when you make a transaction with your credit card, your money moves electronically from your bank through the network to the merchant's bank.

How do credit card companies make money?

As mentioned above, your bank makes money majorly from you and also from the merchants where you use the card issued by the bank to make the payment. Banks or financial institutions make money in the form of-

Fees

Banks charge different types of fees from their cardholders- some fees are to be paid by everyone whereas other types of fees are levied on condition. Let us talk about these fees and charges-

  • Annual Fees- You have to pay annual fees towards your credit card, especially when you are an elite cardholder and enjoy higher benefits than normal users. This is to be paid by all users. However, some banks may set a condition of spend based annual fee reversal scheme.
  • Cash Advance Fees- When you withdraw money from an ATM using your credit card, the bank charges a minimal fee for it which is normally correlated to the amount you withdrawal. This is also included in the card issuer's earnings.
  • Late Fees- Your card issuer charges fees from you if you delay your EMI payments. Banks make more money from late payers in the form of late fees.
  • Balance Transfer Fees- When you transfer outstanding balance from one card to another, the bank charges fees from you which again becomes its earnings.

Interest

The bank or financial institution has just gifted you a credit line. You have to pay the interest for the loan that is offered to you in the form of credit card. This interest cost adds to your expenses and is a method of earning for the banks. Interest on credit card is charged on daily basis for as long as the amount stands outstanding in your account. This is why experts always advise you to pay the total outstanding amount in full every month because interest will accrue on any amount that stands unpaid.

Let us understand this with the help of an example. Suppose the billing date is on 4th of every month and payment due date falls on 29th of every month. APR = 24%

  1. 10th March- Apparel Shopping- Rs. 5,000
  2. 13th March- Bill Payment- Rs. 2,000
  3. 19th March- Gadget Purchase (converted into 6 month EMI) – Rs. 12,000
  4. 22nd March- Dining Bill- Rs. 1,000

Now considering that the person does not have any outstanding amount from the previous bill, he will have to pay Rs. (5,000 + 1,000 + 2,000 +2000) = Rs. 10,000.

This will be the total amount due on 29th March. Now if the person chooses to pay only Rs. 6,000, the remaining Rs. 4,000 will accrue interest for each day until the amount is paid in full. Considering that the user again pays Rs. 2,000 on the 10th of April, let us see how interest cost works out-

Interest = (outstanding amount x 2 percent per month x 12 months) * (number of days) 365

In this case, the total interest charged would be Rs. 52.60 which is a total for Rs. 4,000 that lies outstanding for 11 days and Rs. 2,000 that lies outstanding for 18 days until the next payment. This is the reason why those who only pay minimum amount due tend to fall into debt soon sooner. Cardholders should also note that when an amount is outstanding in your statement, the new purchases that you make are not eligible for the interest free period. This is why interest charge is the easiest way how banks make money out of your credit card.

Interchange Fee from the Merchant

When you use your card at a merchant terminal, the merchant also pays a percentage of the amount to the bank as processing fees. This will also be added on to the bank's earnings. It usually ranges between 1 to 3 percent of the transaction value but may differ from merchant to merchant.

How to save yourself from paying too much to the bank?

Savvy customers plan their transactions and payments in a way that they have to pay the least amount to the bank. These are the habits you can adopt to cut your costs-

  • Pay your entire outstanding balance every month; just pay the minimum amount due is not a good practice.
  • Set alerts for your payment due dates to avoid missed payments which entail late fees.
  • Create an emergency fund to replace costlier options like cash advances from credit card.
  • Choose low annual fee or free credit cards and even if you select a card with high annual fee, make sure that the rewards are worth it.

Why Custom Web Design is Important For Your Business

Introduction

Custom web design plays an important role in the success history of a web site. A site is consists of text and images and there are many pages in the site. Each web page in a site is an HTML file having its own URL. A web site is similar to traditional print publishing as it is also a container of information like a book. The difference is that a book is a hard copy of information and a website is a soft copy of information.

Necessity of web design

For any business to grow, it is necessary to have an attractive and appealing website. When we browse through a site, it is the attractive appearance of the site which shows our eyes and we want to search more on that. A website gives online presence to a business that has widest reach and can be accessed by a number of people. Today, in the world of internet, people like to communicate more through internet and for any information or service they search on the internet. By having a website you can easily be in touch with your clients and customers.

Important components of a good website

A website should have good navigation power, people are not patient enough to struggle in finding their way around in your site. So your web site should have strong and flexible navigation power.

The display of site should be very clear and visible. Hazy appearance and unclear visual aspects are negative points for your site. Whatever your business has to offer should be demonstrated on the site very clearly.

With the help of web designers you can make your site attractive and eye appealing. The web designers work on different aspects of a web site such as content, text, graphics, display, etc. which make a site live and user friendly. Different types of things are utilized in designing a web site such as animation, communication design, graphic design, information architecture, marketing, interaction design, photography, typography, corporate identity etc.

You can make your web site more attractive and appealing to audience by designing your site. Web designers are professionals who have proper training in this field. You can hire these web designers to design your web site. And you can see the difference and growth of your business in very effective manner.

Finding Discount Web Hosting

There are a large number of cheap web hosting service providers that are offering their services and you are required to select any one of them while you are creating your own web portal, offering everything from shared-hosting packages to superior end dedicated servers to starter. There are certain points that you are required to consider while you are looking for discount web hosting, some of them are as under.

1. The disk space offered; the content, images along with the web pages that you are considering uploading to your web portal requires space, it is just like the data which acquires disk space on your personal computer. Most of the web hosting companies offers you with a limited capacity, although you are not planning on storing or uploading huge files on your website.

2. Speed and Reliability; you need to make sure that the host company you are selecting is providing you with speedy services and is reliable too. All the web-hosting companies write 99.99% up time in their advertisements but you should be asking them for their reports. If your website happens to slow down then you will be resulting in frustrated and irritated visitors and it is certainly going to affect your website’s search engine rankings. Google is have billions of web portals with it and if yours is particularly slow then it is going to move on to the next one right away.

3. The bandwidth; when you happen to download things to your systems from the Web, it requires bandwidth. Same is the case when people are visiting your web portal and they are downloading stuff, it is going to strain your web hosting service providers. Therefore, if you need to get things transferred speedily or while you are refreshing your web pages then you are required to have a certain amount of bandwidth. It may be that the Discount Web Hosting service providers are offering you with additional resources like website templates, an auto responder, unlimited emails, and cgi bin.

The above-mentioned are some of the most considerable points while you are seeking for Discount Web Hosting service providers. You should be comparing the rates of different companies to figure out that which one is fulfilling your needs and requirements in a better way. As your web portal grows, you are required to make sure that you are getting a good deal and value out of the web hosting services.

If You Are Travelling Overseas This Year Then Here Is How To Find Cheap Holiday Car Rental

When you want to hire a car for a holiday, you are likely to look for an option that will allow you to spend less. This is the reason why many people like it when they get cheap holiday car rental. They know that by finding cheap holiday car hire, they will save a lot of money which they can then use to make their holiday experiences even better. However, what you need to know is that unless you hire the most suitable cars, your holiday will never be as good as you want it to be.

Be careful when choosing a company to hire cars from. What should not escape your mind is the fact that unless you choose a reliable company, you will be more likely to end up with many problems. Although there are many companies that rent out cars, what is obvious is that not all of them can be trusted. You therefore need to know how good each one of the companies is before you decide to use their services. For example, find out the type of cars that they have, how long they are willing to rent them out and how much they charge for this.

Another important thing is to know if you are allowed to rent from them. This is because there are some companies that will restrict people from hiring their vehicles. For instance, a company may not allow you to get cheap holiday car rental if you have a bad credit score. Others may not agree if you are going to use the cars beyond the geographical limits that they specify. However, the good thing is that there are other companies who will provide cheap holiday car hire without bothering too much about your credit score or how far you intend to go in their vehicle.

You also need cars that are in a good condition. They should be well serviced and ready to be used immediately. Just because you are getting them at cheaper rates does not mean that you should be provided with cars that are too difficult to use. Remember that a person going for a holiday needs to be comfortable all the time. This will not be possible if you do not receive a vehicle in good condition. You also should ask them for things such as insurance. Let them tell you if they will be paying for it or if they expect you to meet the costs of insurance for the period over which you will be using the car.

Since one cannot tell exactly how much cheap is, you need to ask them to state how much you are expected to pay. There is a wide variation in the amount of money that a client can pay for cheap holiday car rental. This depends on the costs that the companies incur and many other things. If you have the time, you can compare prices from several companies in order to know which one offers the most affordable services. This can be done online for faster results.