On this blog, I believe you have seen mentions of lots of credit card sign-up bonus. Of course, credit card companies won’t offer bonuses as charities do. They want to make money from you. Once you have taken advantage of it, they want to take advantage of you too. Here is how credit card companies earn revenues.

Interchange fees (Discount rate)
Interchange fees are charged by the merchant’s acquirer to a card-accepting merchant as component of the so-called merchant discount rate (also referred to as “merchant service fee”). The merchant pays a merchant discount fee that is typically 2 to 3 percent (this is negotiated, but will vary not only from merchant to merchant, but also from card to card, with business cards and rewards cards generally costing the merchants more to process), which is why some merchants prefer cash or debit cards. And when you give them a card, they will ask you whether this is a credit card or debit card. The majority of this fee, called the interchange fee, goes to the issuing bank, but parts of it go to the processing network, the card association (American Express, Visa, MasterCard, Discover, etc) andhe merchant’s acquirer. With a corporate card, the interchange is also often shared by the company in whose name the card is issued as an incentive to use that issuer’s card instead of someone else’s.

The interchange fee that applies to a particular merchant is a function of many variables including the type of merchant, the merchant’s average transaction amount, whether the cards are physically present, if the card’s magnetic stripe is read or if the transaction is hand-keyed or entered on a website, the specific type of card, when the transaction is settled, the authorized and settled transaction amounts, etc. For a typical credit card issuer, interchange fee revenues may represent about fifteen percent of total revenues, but this will vary greatly with the type of customers represented in their portfolio. Customers who carry high balances may generate low interchange revenue due to credit line limitations, while customers who use their cards for business and spend hundreds of thousands of dollars a year on their cards while paying off balances every month will have very healthy interchange revenues.

Interest on outstanding balances
Interest charges vary widely from card issuer to card issuer. Often, there are “teaser” rates in effect for initial periods of time (as low as zero percent for, say, six months), whereas regular rates can be as high as 40 percent. In the U.S. there’s no federal limit on the interest or late fees credit card issuers can charge; the interest rates are set by the states, with some states, like South Dakota, having no ceiling on interest rates and fees, inviting some banks to establish their credit card operations there. Other states, like Delaware, have very weak usury laws. The teaser rate no longer applies if the customer doesn’t pay his bills on time, and is replaced by a penalty interest rate (for example, 24.99%) that applies retroactively. So customers should be wary of these offers that usually contain some traps. Cash withdrawals will never carry the teaser rate, for example.
Fees charged to customers
The major fees are for:

Late payment fees Charges that result in exceeding the credit limit on the card (whether done deliberately or by mistake), called overlimit fees
Returned check fees or payment processing fees (e.g. phone payment fee)
Cash advances and convenience checks (often 3% of the amount). Transactions in a foreign currency (as much as 3% of the amount). A few financial institutions do not charge a fee for this.
Membership fees (annual or monthly), sometimes a percentage of the credit limit. Issuers love monthly fees as it allows them to charge substantial amounts without the customer realizing how expensive the charge really is (a monthly amount is perceived as half the price of the equivalent annual fee)

Other service revenues
A lot of credit card companies are trying to sell their payment protection plans, or other financial related services. E.g. the Chase Payment Protector, Chase Fraud Detector, Credit Secure from American Express, IdentityMonitor from Citi etc.

Industry jargon for customer categories
Customers who do not pay in full the amount owed on their monthly statement (the “balance”) by the due date (that is, at the end of the “grace period”) and are not in a promotional period owe interest (”finance charges”) are known in the industry as “revolvers.” Those who pay in full (pay the entire balance) are known in the industry as “transactors,” “convenience users,” or “deadbeats.” Those that shift usage of their credit cards or transfer balances frequently are known in the industry as “rate surfers”, “rate tarts” or “gamers.” So which category are you in?