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joongoon543 t1_j4981nw wrote

Reply to comment by Square_Tea4916 in USA Credit Cards: Card Balances v. Interest Rate [OC] by rosetechnology

The bank offers several different lines of credit. The most common ones are HELOCs, and business LOCs. We offer credit cards but obviously we use Mastercard or Visa for our consumer credit card providers. We make money from credit card transactions. When you swipe a card the business gets charged for a swipe and we get a certain % of that. We obviously make money from interest.

Most medium sized regional banks like mine (total loan portfolio of $1 billion - $5 billion) make 75% of their income from businesses. Consumer loans just aren’t a money maker for us. Credit card debt is less than 1% of our portfolio, auto loans are around 2%.

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Square_Tea4916 t1_j49bw7f wrote

Assuming you mean a 1% Charge-off rate. Interchange is peanuts compared to what most banks make in fees/interest. I’ve worked at one of the largest Super Regional bank and a global bank spinning up card programs in Europe and North America and can tell you without a doubt the most profitable program is raising credit limits to increase outstanding balances.

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joongoon543 t1_j49jnzy wrote

No, consumer loans that aren’t classified as real estate are less than 5% of our total loan portfolio. It’s extremely rare we have to charge off a consumer loan.

Come on man, if you actually worked at a bank of that size then there’s no way you would say interchange is “peanuts.” Chase made 20 billion from interchange and 51 billion in credit card interest in 2019. Calling that peanuts is insane.

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Square_Tea4916 t1_j49q1ik wrote

They have to spend all that interchange in rewards and partnerships to maintain their customer base. Not to mention all the operational costs in servicing, disputes, and fraud. You can’t run a credit card business successfully on just interchange and be profitable. I don’t know a single bank where interchange outweighs interest even if their entire customer base is super prime.

The truth is… credit cards have become a bet on missed payments and overspending. For every 1 customer who genuinely needed “short-term liquidity” to cover for basic needs there’s 20 to 30 customers blowing stacks on the latest influencer’s merchandise or booking an expensive trip to live like royalty.

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