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POSTED BY ON January 14, 2011 8:21 am COMMENTS (4)
Hello all,
How does this credit card companies offer these cash back policies ranging from 1% – 10%? And also the reward points. On top of it the cards are free for lifetime. How do they manage all these costs? Can they recover all this from the group of customers who default on their monthly credit card bills plus profit?
-Sagar
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Thanks for the info guys! I am glad that i am not part of the group who don’t pay their dues and pay high interest. I pay bills, premiums, shop everything on my credit card and pay the complete amount when its due. I might have earned about 5K by cash back and reward points in the past 3 years from credit cards.
#1 They survive on people who doesn’t pay the due on time. Extremely high interest rates and penalty for missing due is enough to reap the profits. There are more than enough users of this kind 🙁
#2 Selling own Products & Services – Bank Loans, Insurance Policies, ULIPs and what not
#3 Tie-ups – Tie-ups with shops/merchants.. You provide x% cash back, I get 2x Profit, 50/50.. (and Smart Buy selling worthless products worth 1,000 sold for 2,000 advertised as discount of 50%.. E.g Reebok Watch worth 2,499 only for 799)
#4 Selling Card Holder Information (Phone Number, Address, Profile, Purchase Patterns etc..).. Might look like wrong.. But, where do you think people get your phone numbers etc.. Some one has to sell right?
credit card companies make money on the interest that they get by keeping the money from the store/retail outlet etc. the company keeps the money and gives them only after the month’s cycle. From that amount, they give you some as reward points/cashback/etc.
Now, how does the retail outlet benefit. It benefits because then you can make big purchases which you would not do otherwise so easily!!
Ramesh
Yes is the answer. They make money from defaulters/late payers(mostly young people who dont read the fine print and who want quick money and who take cash from credit cards-easy but comes at a huge cost and affects credit history for life).
I have only made money from cash back credit cards-but I do pay in full without fail when the bill is due. And dont take cash from credit cards!! Default once and the cash back gains are reversed and will end up paying much more. My cash back rate is 0.75%-not bad.