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When the fee a merchant pays to accept the card isn't much more than the 2% itself. 

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Fees & interest

Fees and interest as already said. You'd be surprised just how bad some people are at paying back their bills and how much extra they pay.

I believe for Fidelity, it is almost like a marketing cost to them. It is likely well worth it to keep people investing through fidelity at a 2% expense.

But the fee isn't any/much more than 2% for large merchants and many people pay in full each month so no interest.

atikovi said:   But the fee isn't any/much more than 2% for large merchants and many people pay in full each month so no interest.
  From what I've read, people that pay in full are in the minority.

atikovi said:   But the fee isn't any/much more than 2% for large merchants and many people pay in full each month so no interest.
  Not the interchange, but the fees from cardholders: late payment fees, over credit limit fees, etc.

atikovi said:   But the fee isn't any/much more than 2% for large merchants and many people pay in full each month so no interest.
They don't care if one particular customer isn't profitable to them.  They market their offers to a pool of clients, and their goal is for the entire pool, on the whole, to be profitable.  They know there will be people who are smart and meticulous and take advantage of generous sign-up bonuses and cash back rebates, and pay in full every month (or stop using the card after the bonus requirements are met) but these people are in the minority.  Most people carry a balance and pay more in interest and late fees/penalties than they collect in bonus money.  The card issuer is basically breaking even on the swipe fee in order to bring in more customers.  Most of those customers end up being profitable for the card issuer.  A few end up costing the issuer money, but on the whole, it's worth it to them.  The FWF type of credit card holder is a loss leader to them.

Why doesn't the grocery store go out of business? Diet Coke is on sale for $1.99/12-pack. They're losing money on every one they sell.

Because you buy chips and salsa to go with the soda.

BostonOne said:   
 
  Not the interchange, but the fees from cardholders: late payment fees, over credit limit fees, etc.

  What card has over credit limit fees? Everytime I've hit the limit on a card, it either declines right away or it goes thru with no fees but at the next statement I have to pay down to the limit.

They may lose money on each transaction, but they make it up on volume.

rufflesinc said:   
BostonOne said:   
 
  Not the interchange, but the fees from cardholders: late payment fees, over credit limit fees, etc.

  What card has over credit limit fees? Everytime I've hit the limit on a card, it either declines right away or it goes thru with no fees but at the next statement I have to pay down to the limit.

  They're way less common since the CARD act since you have to opt in to go over your limit, but they exist.

soxfan1 said:   Because you buy chips and salsa to go with the soda.
  
Thanks for phoning in from Obvious, Texas.

otaymiester said:   Why doesn't the grocery store go out of business? Diet Coke is on sale for $1.99/12-pack. They're losing money on every one they sell.
  I never understood why people keep paying $1.99 for a cup of soda at a restaurant when 2 liter bottles of it are 99 cents on sale at supermarkets? And half the cup is filled with ice to boot. Yea I know you, can't bring your own soda into a restaurant, but still. Why not just drink free water?

wraithtech said:   
atikovi said:   But the fee isn't any/much more than 2% for large merchants and many people pay in full each month so no interest.
  From what I've read, people that pay in full are in the minority.

 
Guess this puts me in the minority...and I'm proud of it!!!

raceman73 said:   
wraithtech said:   
atikovi said:   But the fee isn't any/much more than 2% for large merchants and many people pay in full each month so no interest.
  From what I've read, people that pay in full are in the minority.

 
Guess this puts me in the minority...and I'm proud of it!!!

  "I don't always pay in full, but when I don't I charge to the credit limit with a 0% promotional offer"

atikovi said:   
otaymiester said:   Why doesn't the grocery store go out of business? Diet Coke is on sale for $1.99/12-pack. They're losing money on every one they sell.
  I never understood why people keep paying $1.99 for a cup of soda at a restaurant when 2 liter bottles of it are 99 cents on sale at supermarkets? And half the cup is filled with ice to boot. Yea I know you, can't bring your own soda into a restaurant, but still. Why not just drink free water?

  
​Because they are addicted to the product.  That's my excuse.  

atikovi said:   
otaymiester said:   Why doesn't the grocery store go out of business? Diet Coke is on sale for $1.99/12-pack. They're losing money on every one they sell.
  I never understood why people keep paying $1.99 for a cup of soda at a restaurant when 2 liter bottles of it are 99 cents on sale at supermarkets? And half the cup is filled with ice to boot. Yea I know you, can't bring your own soda into a restaurant, but still. Why not just drink free water?

I never understood why people go out to eat when they can just cook at home.
I never understood why people buy clothes, they can make their own.

Different people have different thresholds for things they will do themselves and different thresholds for what they will pay for. As long as they can afford it, that's what makes the world go round.

Because in many cases (especially diet varieties), the stuff you get from the fountain or gun isn't the same stuff that you can get out of a 2L bottle.

atikovi said:   otaymiester said:   Why doesn't the grocery store go out of business? Diet Coke is on sale for $1.99/12-pack. They're losing money on every one they sell.
  I never understood why people keep paying $1.99 for a cup of soda at a restaurant when 2 liter bottles of it are 99 cents on sale at supermarkets? And half the cup is filled with ice to boot. Yea I know you, can't bring your own soda into a restaurant, but still. Why not just drink free water?


I was going to mention my first job: Taco Bell. The biggest profit margins was on the sofa. Not much made on tacos.

I also have a theory that on certain cards, the bank has a special arrangement with the network that lowers its transactional cost. For example, I think Citi has a flat rate cost with Mastercard so that it keeps more of the charge than a traditional situation. This makes the Citi DC more feasible.

Rasheed

irate_retro said:   Because in many cases (especially diet varieties), the stuff you get from the fountain or gun isn't the same stuff that you can get out of a 2L bottle.
  The stuff from the fountain is mixed on-site so it's taste can vary a lot, and not in a better way.  

InFlamed said:   Fees and interest as already said. You'd be surprised just how bad some people are at paying back their bills and how much extra they pay.

I believe for Fidelity, it is almost like a marketing cost to them. It is likely well worth it to keep people investing through fidelity at a 2% expense.


Agree.

Plenty of opportunities for a financial institution to market you other crap, while you're a money losing credit card customer. If they're managing a big portfolio of yours and you also have a mortgage, they could care less if they're losing money on your card.

The 2% cards tend to not come with giant signup bonuses. I think the bank assumes the higher bonus on spend *is* the signup bonus and they look at it based on what their average customer spends in a year.

atikovi said:    The stuff from the fountain is mixed on-site so it's taste can vary a lot, and not in a better way. 
 

The artificial sweetener used can be a totally different product from the 2L version too.  For example with Diet Coke, if memory serves. That did taste much better from fountains.  I haven't had any since the 90's though so my information may be outdated.

2%cards are not easy to get and they require excellent credit. So you are giving these cards to the customers who ARE actually paying in full.
OPs question is legit and it is about 2% and 2% card only.

otaymiester said:   Why doesn't the grocery store go out of business? Diet Coke is on sale for $1.99/12-pack. They're losing money on every one they sell.
  Diet Coke is loss leader. Is is meant to lure people going into store and buy other stuff. If I have a 2% card, I am not going to sign up for another card. Plus citi is making sure that I have excellent credit so it is a lose lose situation. 

Looks like they are counting on the fact that, somehow I will start paying interest for no reason?

atikovi said:   
otaymiester said:   Why doesn't the grocery store go out of business? Diet Coke is on sale for $1.99/12-pack. They're losing money on every one they sell.
  I never understood why people keep paying $1.99 for a cup of soda at a restaurant when 2 liter bottles of it are 99 cents on sale at supermarkets? And half the cup is filled with ice to boot. Yea I know you, can't bring your own soda into a restaurant, but still. Why not just drink free water?

  
The free water tastes like chlorine in most places.  The only major exception around here is NYC.  They have decent tap water there.

I rarely drink soda though.

burgerwars said:   
atikovi said:   
otaymiester said:   Why doesn't the grocery store go out of business? Diet Coke is on sale for $1.99/12-pack. They're losing money on every one they sell.
  I never understood why people keep paying $1.99 for a cup of soda at a restaurant when 2 liter bottles of it are 99 cents on sale at supermarkets? And half the cup is filled with ice to boot. Yea I know you, can't bring your own soda into a restaurant, but still. Why not just drink free water?


I was going to mention my first job: Taco Bell. The biggest profit margins was on the sofa. Not much made on tacos.

  Absolutely. If McDonalds only sell burgers they would be out of business like yesterday. 

king0fSpades said:   2%cards are not easy to get and they require excellent credit. So you are giving these cards to the customers who ARE actually paying in full.
OPs question is legit and it is about 2% and 2% card only.

  
You don't have to pay in full to get excellent credit scores. You really just have to make minimum payments.

But they probably are filtering their customers to reduce the number of deadbeats, and that's what REALLY kills profits for an issuer. Guys like us taking all of their cut of processing fees (and then some) are tolerable losses, at least partly covered by mistakes or emergencies when the balance isn't paid off as usual. Defaulting on a big balance is a much worse problem for issuers.

DTASFAB said:   
atikovi said:   But the fee isn't any/much more than 2% for large merchants and many people pay in full each month so no interest.
They don't care if one particular customer isn't profitable to them.  They market their offers to a pool of clients, and their goal is for the entire pool, on the whole, to be profitable.  They know there will be people who are smart and meticulous and take advantage of generous sign-up bonuses and cash back rebates, and pay in full every month (or stop using the card after the bonus requirements are met) but these people are in the minority.  Most people carry a balance and pay more in interest and late fees/penalties than they collect in bonus money.  The card issuer is basically breaking even on the swipe fee in order to bring in more customers.  Most of those customers end up being profitable for the card issuer.  A few end up costing the issuer money, but on the whole, it's worth it to them.  The FWF type of credit card holder is a loss leader to them.

  Not to mention, the rewards expense is mostly a deferred expense that may or may not ever be realized.  Most people dont obsessively wait for their statement to cycle so they can cash out hundreds of dollars of cashback as soon as possible; especially with $25 or even $50 redemption thresholds, normal customers can go months before they're even eligible to receive their reward.  And by then the novelty of a reward has worn off and it becomes an afterthought they never pay attention to again.  Or they redeem their $25 cashback for a $25 retail gift card that the rewards program acquired at a discount.  Or they use $50 of reward currency to order some product that can be bought in WalMart for half that amount. 

In short, if everyone redeemed their credit card rewards as soon as they're available, and redeemed them for maximum value, 2% cards would probably go the way of 5% opportunities - still available, but severely restricted and/or capped.

king0fSpades said:    Absolutely. If McDonalds only sell burgers they would be out of business like yesterday.
 

If that's true (and I'm not necessarily disagreeing with you two), then how come the soda is essentially "free" in a value meal?  For example I can buy a burger and large fries separately, but it's cheaper just to get the value meal with the soda even if you don't want it.  In a previous life I worked at McD and I'd explain the cost savings to the customer.  If he absolutely refused the soda, I'd still ring it up as a value meal but not pour the drink.

king0fSpades said:   
 
 

  Absolutely. If McDonalds only sell burgers they would be out of business like yesterday. 

  Mcdonalds started based on their burgers ... not on selling marked up soda

SpeedingLunatic said:   
atikovi said:   
otaymiester said:   Why doesn't the grocery store go out of business? Diet Coke is on sale for $1.99/12-pack. They're losing money on every one they sell.
  I never understood why people keep paying $1.99 for a cup of soda at a restaurant when 2 liter bottles of it are 99 cents on sale at supermarkets? And half the cup is filled with ice to boot. Yea I know you, can't bring your own soda into a restaurant, but still. Why not just drink free water?

  
The free water tastes like chlorine in most places.  The only major exception around here is NYC.  They have decent tap water there.

I rarely drink soda though.

  I always bring my own bottled water when I goto a restaurant. (not trolling)

irate_retro said:   
king0fSpades said:    Absolutely. If McDonalds only sell burgers they would be out of business like yesterday.
If that's true (and I'm not necessarily disagreeing with you two), then how come the soda is essentially "free" in a value meal?  For example I can buy a burger and large fries separately, but it's cheaper just to get the value meal with the soda even if you don't want it.  In a previous life I worked at McD and I'd explain the cost savings to the customer.  If he absolutely refused the soda, I'd still ring it up as a value meal but not pour the drink.

  There's no real sense parsing a comment like that so literally.  If they literally only offered hamburgers it would fundamentally alter every aspect of their business model.  Suffice it to say that when they sell drinks a la carte they make a lot of money on them and when they include them in the Value Meals they don't lose a whole lot of money on them and it doesn't take a lot of imagination to figure it helps to sell a lot of Value Meals.

I did quote it, but I wasn't taking it literally.
IMBoring25 said:   when they include them in the Value Meals they don't lose a whole lot of money on them and it doesn't take a lot of imagination to figure it helps to sell a lot of Value Meals.
 

So the included drink brings in zero revenue (but little losses), and there's not much profit margin in the hamburgers, if the earlier comments are to be taken as truth.  Where's the money come from then?  It sounds like it doesn't help to sell a lot of value meals.

I never saw anything saying there wasn't much profit margin in the burgers. Regardless of what your profit margin is on a product, you have to have enough volume to give you enough gross profits on sales of the product to cover fixed expenses. Improving the value proposition for the customer with an additional product that costs little to provide helps with volume.

I would also imagine they don't run a lot of tickets that only have Value Meals on them. The Value Meals and Happy Meals get people in the door, then they sell extra fries, shakes, extra drinks, appetizers...

burgerwars said:   
atikovi said:   
otaymiester said:   Why doesn't the grocery store go out of business? Diet Coke is on sale for $1.99/12-pack. They're losing money on every one they sell.
  I never understood why people keep paying $1.99 for a cup of soda at a restaurant when 2 liter bottles of it are 99 cents on sale at supermarkets? And half the cup is filled with ice to boot. Yea I know you, can't bring your own soda into a restaurant, but still. Why not just drink free water?


I was going to mention my first job: Taco Bell. The biggest profit margins was on the sofa. Not much made on tacos.

  So then good thing I was the weird one and bought a sofa from Dillard's.  Their last several quarterly reports actually show their furniture department has had really bad results.  So either they're just really inefficient or the markup must not be too bad.  TIL Taco Bell has high profit margins on sofas, so I really dodged a bullet not shopping there.  Possibly dodged a real bullet too, if I consider where most of the taco bells are located in my city.

irate_retro said:   I did quote it, but I wasn't taking it literally.
IMBoring25 said:   when they include them in the Value Meals they don't lose a whole lot of money on them and it doesn't take a lot of imagination to figure it helps to sell a lot of Value Meals.
So the included drink brings in zero revenue (but little losses), and there's not much profit margin in the hamburgers, if the earlier comments are to be taken as truth.  Where's the money come from then?  It sounds like it doesn't help to sell a lot of value meals.

  Where does the money come from?  The fries.  The value meal is designed to get a burger customer to also buy a fry and a drink, which produces an acceptible blended profit margin.  Of course the three items separately would be more profitable, but then you are relying on each customer to actually order all three items.  Selling them a #3 guarantees they do.

Skipping 78 Messages...
george2001 said:   They may lose money on each transaction, but they make it up on volume.
  If I understand correctly, then such cards are a privilege of huge retail/universal banks? Small banks just cant compete, right?



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