If you always pay down your credit card debt every billing period, you're considered a "deadbeat" because you're using the benefits of the credit card's payment processing but not paying in interest.
The best customers of financial institutions aren't those whom are financially responsible or flush with cash, but those regularly incurring 14+% interest on every purchase and paying overdraft fees.
For airlines in particular, the deals they allow through credit cards are more like loss leaders. They need to fill up seats because that's the nature of their business model. If you don't fill up enough seats to make up for the operating cost, the plane doesn't fly, and if the plane doesn't fly then that's one fewer route you'll have paying customers for. Airlines need to keep routes going, so they create incentives to keep people flying, which hopefully gets them into the habit of flying again even when they've used up all their rewards points.
Banks do not treat credit card customers as one uniform group, using the poor to subsidize the rich. They are multiple segments, with different business models in each segment.
High spend full pay customers provide revenue through interchange fees, marketing deals, and other sources other than interest. They are the most valuable customers, And the most obvious customer facing evidence of this is that they get the largest sign on bonuses.
As a proud "deadbeat" in this category, the rebates are great, but I know it comes at the expense of broader society. Effectively, if you're wealthy enough (like many on HN are) you can use cash back rewards to get more money out of the system than you put in via fees, meaning at years end you will net back money over and above pricing to compensate for the transaction fees (IE, the prices of goods tend to be marked up at least 2% more to account for transaction fees). This is why 5% cashback rewards are a huge draw, even though you often have to manage categories, you can seriously come out ahead if you plan your spending accordingly.
This is why the wealthiest consumers - I'd argue to credit card companies they're the most important consumers - actually defend higher fees. Credit card companies know full well there is a subset of folks who will never pay interest, but they are also some of their strongest public defenders for the status quo.
According to the OP's link, the credit card companies made $51 billion in interchange fees in 2020. That's mostly from what you call "deadbeats". That's a lot of money. Deadbeats are super-profitable.
Those paying interest & late fees are even more profitable than deadbeats. But make no mistake, the credit card companies love deadbeats too.
The biggest lie the banks get people to believe is that they're somehow "scamming" the credit card companies by paying off everything in full each month.
No! You're a highly profitable customer! You're the customer they offer $400 to to sign up!
> If you always pay down your credit card debt every billing period, you're considered a "deadbeat" because you're using the benefits of the credit card's payment processing but not paying in interest.
So why do they keep offering me incentives to use their product? Is it the hope that one day, after 20 years, I'll finally overspend and they'll get to collect some interest from me?
Credit cards enable you to buy more products and services earlier, which is good for financial institutions that have investments in the businesses that provide you those products and services. Money that just sits there does nothing for anyone, but money does good things when it keeps moving. Even if they don't make anything off you, you're moving money around so the businesses they have partial ownership of can be seen as valuable and have reason to grow. They can't just give money to these businesses instead of you because then there'd be little guarantee that they'd provide enough value to be worthwhile. By giving you a credit card, you're telling the financial institution behind the credit card what businesses are valuable to you and what they should be invested in.
This isn't to say that they don't still consider you a low value user, since you're not providing them with much in terms of direct revenue. Yes, finance companies love it when you hand money directly to them and won't mind if you forget to make a payment after 20 years and and up paying interest.
My guess is they probably have mountains of data that they use to optimize the probability of overspending across a population.
You may be unlikely to overspend after 20 years because you are financially literate, but if you're paying off your credit card every month, you and I are very much outliers on the bell curve of net worth in the US. If you have an engineer job you almost certainly are an outlier. We aren't the target audience of these ads. There are a lot of people in the middle of the curve who mostly pay off their credit card every month but might slip once or twice, and they want to optimize that probability of slipping.
Because they collect their 3% or whatever, and even after giving you your "cut" for strongarming the merchant for them, they still get 1% or whatever it is.
You've paid off every month on time for 20 years, and they get 1% of that. For basically running some servers and balancing payments.
That's big money - debit cards do the same thing for what, 25 cents a payment? So once the credit card hits about $9 it's all gravy.
incurring 14+% interest on every purchase and paying overdraft fees
Your point is well taken, but even with a high credit score Apple Card is still at 16% (for us). And after a surprisingly/not surprisingly difficult time finding that interest rate, Bank of America is charging us friggin' 20%. We pay both cards off each month, so it doesn't matter to us. But it probably does matter to the less-well-off person paying probably 22-25% on credit card debt that they don't zero at the end of the month.
(EDIT: I see @denimnerd42 ninja'ed me on this point.) Though Goldman-Sachs was losing money on the Apple Card, apparently. How does that happen? From what I've read, Apple wanted a high approval rate, so folks that would be paying those interest rates each month were getting approved but the rate of default was high. Again, so I've read. But it makes me wonder if it isn't more desirable to have customers that pay it off each month, but put everything on the credit card and thus generate the 2% (or whatever) merchant fee on, say, the $8K they spend each month. It might be smaller revenue, but far more reliable with less risk of default.
That merchant fee gets split between the network (e.g. Visa) and the bank, so they net much less than you may think off that. They make far more on interest charged.
That's why some high end cards charge a yearly fee. Its to recoup some of the rewards & perks costs in aggregate.
Yep, seems that 16.24% must be the lowest APR. My credit score is perfect, and that's the best Apple Card will do for me. All of my money (everything, groceries to utility payments, all of it) flows through the card and paid off every month. But that APR is a little nuts, so I keep an old credit union Visa around that has an 8% APR grandfathered in from 15 or 20 years ago. If for some reason I found myself needing to run a balance, even for a short time, that's the card I'd use.
Just have to remind myself to use it occasionally so they don't kill it for inactivity.
Man, I thought that would fall under usury laws or summat.
But I do seem to have some vague recollection that some state like South Dakota knows not of this "usury" you speak of, and therefore the credit card company has a business address there.
not really. goldman sachs found out those customers cost them a lot of money with the apple card. the best customers are the wealthy who have $100k+ in their checking/savings accounts and million+ in their brokerage accounts and clear 10k+ monthly on their credit cards.
That could well be (especially if you look at banks who don't offer competitive interest rates on cash).
That said, Goldman Sachs is sort of infamously bad at consumer banking, so I'd take their words there with a grain of salt. They lose a lot of money on most of their consumer banking endeavors: they lose like a billion per year on Marcus, they're actively trying to drop the Apple credit card, etc.
So at some level, of course GS is gonna say their best customers are the wealthy ones, because they largely haven't figured out how to make a decent business for anyone except the ultra wealthy.
That's just GS overpaying in a business segment they don't have experience in. Companies that know how to run a credit card make a boatload off of high-spending users who pay off the full balance every month.
If you always pay down your credit card debt every billing period, you're considered a "deadbeat" because you're using the benefits of the credit card's payment processing but not paying in interest.
The best customers of financial institutions aren't those whom are financially responsible or flush with cash, but those regularly incurring 14+% interest on every purchase and paying overdraft fees.
For airlines in particular, the deals they allow through credit cards are more like loss leaders. They need to fill up seats because that's the nature of their business model. If you don't fill up enough seats to make up for the operating cost, the plane doesn't fly, and if the plane doesn't fly then that's one fewer route you'll have paying customers for. Airlines need to keep routes going, so they create incentives to keep people flying, which hopefully gets them into the habit of flying again even when they've used up all their rewards points.