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How banks make money of your credit cards

Indians are cautious by nature. In comparison to the rest of the world, the usage of credit cards by Indians is relatively low. Banks love borrowers who spend on credit cards. This is because they charge anywhere between 3 to 4% per month on the outstanding amount if you fail to pay the ‘total amount due’ in your credit card statement. This is the most expensive way of borrowing.

Jefferies, a UK-based securities firm, observed recently that banks are focusing more on offering cards that charge an annual fee rather than offer them for free.

Do you really need a credit card?

We tapped two of our favorite credit experts, Bethy Hardeman of CreditKarma.com and John Ulzheimer of SmartCredit.com, to weigh in on the pros and cons of carrying plastic. Do you really need a ... more 
We tapped two of our favorite credit experts, Bethy Hardeman of CreditKarma.com and John Ulzheimer of SmartCredit.com, to weigh in on the pros and cons of carrying plastic. Do you really need a credit card? Here's what they had to say: Why you need a card less 
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Business Insider
Tue 29 May, 2012 2:30 PM IST
Here are 5 facts on credit cards:

  1. Borrowers are cautious and are revolving less money than before. Over the past one year, 53% of outstanding balances are revolved. When borrowers revolve credit, banks earn a higher interest income. This was over 60% a year ago and over 80% in 2009. Total credit card outstanding as of July 2013 was Rs 23,100 crore, according to RBI data.
  2. Banks primarily earn interest income on the money they lend. Of the total interest income, credit cards account for less than 1% for most banks. Jefferies observes that HDFC Bank generates 4% interest income from credit cards, the highest among all banks. This means more customers of HDFC Bank are revolving credit and paying a higher interest rate.
  3. Ten banks account for 88% of credit cards issued in India.
  4. The four private banks (HDFC Bank, ICICI Bank, Axis Bank and IndusInd Bank) put together now constitute roughly 66% of the total credit card outstanding balances in the banking system.

    Best credit cards for salaried professionals

    Credit limits are based on the annual income and credit history of the individual. The higher the annual income, the higher will be the credit limit. Every bank has different types of cards, based on ... more 
    Credit limits are based on the annual income and credit history of the individual. The higher the annual income, the higher will be the credit limit. Every bank has different types of cards, based on cash rewards, savings and discount in various expenses, gift vouchers or exclusive benefits less 
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    Bankbazaar.com
    Mon 17 Jun, 2013 1:30 PM IST
  5. When you opt for a 0% equated monthly instalment or EMI option, banks charge a nominal transaction fee. Point of sale terminals, as banks call these mode of payment, have surged 50% over past one year. HDFC Bank, ICICI Bank, Axis Bank and IndusInd Bank have an 80% share in this segment, according to Jefferies. 

This work is produced by Simplus InformationServices Pvt Ltd. Customerengagement through content.

 

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