Assaz1978 Thanks for your reply
Perhaps we need to investigate the credit card business a little further to fully flesh out what is happening.
Interchange is the amount that essentailly shared with Visa and Mastercard and the Banks for use of their networks. VIsa and Mcard are seperate franchises that are owned by the banks. This interchange amount is between 0.4796% and 0.6545% of every dollar spent on a Visa or Mastercard. (See
http://www.visa.com.au/wholesale/index.shtml)
Think about how much gets spent on cards and you can see why Visa and MCard are being so protective of their businesses.
So if your MSF (merchant service fee )is 1.6%, the amount left over after interchange is 0.9455%, a very skinny margin indeed. Even Supermarkets make more than this.
Take out the cost of the network, the cost of processing, fraud, marketing, overheads etc and you can see why that if you are a "transactor" you may not be profitable.
Now take out the cost of Frequent Flyer points which is paid to Qantas, and it becomes a very difficult case to make profitable.
Yes, some Merchant fees are higher, but most are lower and this is where the volume is.
The banks do recoup revenue from late payment fees (if you are foolish enough to pay these) as well as interest in revolving balances. However, this is not the main source of revenue for them.
There are no transaction fees on credit cards. There are overseas ATM charges, however, consider the fact that the bank that issues the card has to pay the owner of the ATM for the use of this service or the Cirrus or Plus networks on which they run. This is not a financial windfall for the banks like you may think
To address your statement about balance transfers, the best rate at the moment is being offered by 3 institions. AMEX, Citi and HSBC. This is 2.9% for 6 months. (just threaten to move your business to get this deal)
But, BEWARE! Banks make a lot of money from this. The reason is because if you transact on a card that you have made a balance transfer on, the money that you pay off the card for the balance transfer is counted first, then the transactions.
What this means to consumers is that you will be paying 18.25% (Current Citi Visa/Mcard classic rate) on your balance transfer AND your last 6 months transactions if you transact on this card during the preceeding 6 months and havent paid back every cent within that time frame. Also remember that the Balance transfer is 2.9% but the purchases are at 18.25% and will be charged seperately. After 6 months, they will all be at 18.25%. Scary stuff.
My reccomendation is that if you do a balance transfer, you DO NOT transact on the card until after you have cleared the transferred balance otherwise you could end up worse off than when you started.
Sadly, the banks make most of their money in the credit card business from those who can least afford it. These people subsidise our FF points. These are the people that pay late fees and pay high interest rates on revolviing balances.
As far as rewards are concerned, yes you are right, they are not very good value for points. FF points are by far the best value hence the fact that they arent as easy to get any more.
Also, banks dont loose money on their cards businesses. They have, however been negatively impacted by the changes to interchange and will look to recoup this wherever possible through increased fees and decreased benefits. Alternatively they can use channels that are more attractive (AMex and Diners for example)
Hope this explains things a little more clearly how the cards business works.
Ultimately, you have to make your own decision about which product that you are going to use and benefit from as well as use it wisely. Read the PDS (Product disclosure satement) carefully and dont pay fees you dont need to.
