The Lemon Fool

All this talk of cards got me thinking.

Everyone knows how credit cards make money, and most young people, including myself many years ago, learned the hard way!

But how do debit cards make the banks money? You can only spend what you have and some banks even offer small sums for certain purchases. So, apart from the fact that they have your money to use, as with all current accounts, how are they making a profit via the debit card?


Steve

The retailer pays a small amount to the bank each time they accept a debit card payment. Just the same as for credit cards really but charge may be different. I think, but am not certain, that debit transactions incur a set amount whereas credit card transactions incur a charge of a percentage of the amount being paid.

Laughton wrote:The retailer pays a small amount to the bank each time they accept a debit card payment. Just the same as for credit cards really but charge may be different. I think, but am not certain, that debit transactions incur a set amount whereas credit card transactions incur a charge of a percentage of the amount being paid.

Debit cards also discourage the use of cash, which is expensive for banks to handle. The government also wants people to use less cash.

I only use my debit cards to get cash out of cashpoints or bank branches. All purchases are on credit cards or in cash.

Laughton wrote:The retailer pays a small amount to the bank each time they accept a debit card payment. Just the same as for credit cards really but charge may be different. I think, but am not certain, that debit transactions incur a set amount whereas credit card transactions incur a charge of a percentage of the amount being paid.

The gentleman who delivers my newspapers and has a shop on the High Street will only accept cheques or cards subject to an extra 25p or thereby. I have always assumed that that is the sort of charge levied by his bank for a payment by a debit card (or I suppose by the debit card issuer)

Dod

The gentleman who delivers my newspapers and has a shop on the High Street will only accept cheques or cards subject to an extra 25p or thereby. I have always assumed that that is the sort of charge levied by his bank for a payment by a debit card

It is now illegal to do this in the UK and EU.

typically card companies charge 2-2.5% transaction fee.

pompeygazza wrote:

The gentleman who delivers my newspapers and has a shop on the High Street will only accept cheques or cards subject to an extra 25p or thereby. I have always assumed that that is the sort of charge levied by his bank for a payment by a debit card

It is now illegal to do this in the UK and EU.

Illegal in the US as well, but shops and other establishments still do it. Or impose a minimum spend for card transactions.

And yes, it is to cover the interchange fee charged by Visa, Mastercard etc.

Supermarket receipts used to say that using a debit card was charged 2%, but this was dropped a few years ago. No doubt , prices were adjusted up 2% to cover the cost. At the time ,I wondered why the cash buyer didn't get a 2% discount.

Lootman wrote:

Laughton wrote:The retailer pays a small amount to the bank each time they accept a debit card payment. Just the same as for credit cards really but charge may be different. I think, but am not certain, that debit transactions incur a set amount whereas credit card transactions incur a charge of a percentage of the amount being paid.

Debit cards also discourage the use of cash, which is expensive for banks to handle. The government also wants people to use less cash.

I only use my debit cards to get cash out of cashpoints or bank branches. All purchases are on credit cards or in cash.

Thanks for the info, guys.

So, to summarise, the banks make money because, as with all accounts, the money is theirs to use.

They make money because they spend less time handling cash.

Then they make money from the retailer being charged for accepting the debit card.

I imagine the charges may have been a lot more years ago. I vaguely remember my dad back in the 70s paying with cash and haggling a better price.

Out of interest, Lootman, why do you prefer using a credit card rather than a debit card? I tend to use both cash and debit cards and I feel safer that way. Both my sister and I had bad experiences with how easy it is to run up debts with CCs when we were young and ever since then, I use them only for large, occasional purchases and pay off the balance almost immediately. I have an intense dislike of knowing that I owe money, as opposed to my wife who doesn't seem to give a monkey's!

Steve

pompeygazza wrote:

The gentleman who delivers my newspapers and has a shop on the High Street will only accept cheques or cards subject to an extra 25p or thereby. I have always assumed that that is the sort of charge levied by his bank for a payment by a debit card

It is now illegal to do this in the UK and EU.

typically card companies charge 2-2.5% transaction fee.

Rule of thumb: Higher for small biz, lower for big biz. That's 'cos the big biz offers bigger turnover and lower risk to the banks.

When I ran a one-man business accepting card payments (online only), we paid 4.5% to accept credit cards or a flat-rate 95p per transaction for debit cards. During that time was the year HMRC decided I owed them the grand sum of 10p and I paid that by debit card