So many of us are carrying the notion that Credit Card is such a convenient way of having money in your pocket without actually having to carry cash... and that too absolutely Free of Cost... WRONG.
I am certainly not talking about annual fees or extra surcharge that Credit Card companies levy.
There is a totally different economics that goes on behind the scene.
Consider this...
Bank gives you Credit Card and then you can swipe it at any merchant outlet in lieu of cash. You get the convenience of not carrying the cash, merchant has the money directly credited to his account. Win-win situation... isn't it?
What does the bank gain?
Bank gets a fee (which is generally varies between 1% to 3% of the transaction amount) that is done on the Credit Card and merchant has to pay this fee. The merchant risks of loosing the customer if he does not provide you the payment by Credit Card facility so he has no choice.
Does that mean that the merchant has his profit margins eroded because of Credit Card transactions... absolutely NOT.
He builds in the additional fee that he has to pay to bank in the price of the merchandise he is selling. By this way he actually gain more on the non Credit Card (cash) transactions as he get the higher price for cash transaction also.
So bottom line is that actually you end up paying higher price for the same merchandise by Credit Card than what you would have paid had you made payment by cash.
So even if bank sometimes act with Holier than thou approach and offer you lifetime free Credit Card, they are not loosing anything.
It is you who end up paying higher.
Hope I am clear in my communication and the notion that Credit Card is free is destroyed for few who read this.
Watch this space for learning the ways to get yourself on the other (winning) side following the same rules.
I am certainly not talking about annual fees or extra surcharge that Credit Card companies levy.
There is a totally different economics that goes on behind the scene.
Consider this...
Bank gives you Credit Card and then you can swipe it at any merchant outlet in lieu of cash. You get the convenience of not carrying the cash, merchant has the money directly credited to his account. Win-win situation... isn't it?
What does the bank gain?
Bank gets a fee (which is generally varies between 1% to 3% of the transaction amount) that is done on the Credit Card and merchant has to pay this fee. The merchant risks of loosing the customer if he does not provide you the payment by Credit Card facility so he has no choice.
Does that mean that the merchant has his profit margins eroded because of Credit Card transactions... absolutely NOT.
He builds in the additional fee that he has to pay to bank in the price of the merchandise he is selling. By this way he actually gain more on the non Credit Card (cash) transactions as he get the higher price for cash transaction also.
So bottom line is that actually you end up paying higher price for the same merchandise by Credit Card than what you would have paid had you made payment by cash.
So even if bank sometimes act with Holier than thou approach and offer you lifetime free Credit Card, they are not loosing anything.
It is you who end up paying higher.
Hope I am clear in my communication and the notion that Credit Card is free is destroyed for few who read this.
Watch this space for learning the ways to get yourself on the other (winning) side following the same rules.
No comments:
Post a Comment