Banks incentivize people with money to bank with them and then use that money to loan to others and make money on the interest.

Credit card companies make money by charging a fee to the business that accept their cards and they make money on interest when people don’t pay their balance in full each month

All credit cards are backed by a bank. Look at your credit card, it will say something like "Issued by XYZ bank" on the back somewhere. Banks have access to capital, both their own and capital reserves made available to them by the Fed system

So when you swipe your card, the bank transfers money from their accounts to the merchants accounts, then marks the debit on your account that you get when you get your statement.

> All credit cards are backed by a bank. Look at your credit card, it will say something like "Issued by XYZ bank" on the back somewhere

I have a Capital One card, it says nothing about being issued by bank. Are you not simply talking about debit cards?

Its A Wonderful Life has a nice bit on this.

Banks get money for loans from a couple of sources, but one of the primary sources is their account holders. When you deposit say $1,000 with the bank they don't take that cash and stuff it into a safe being kept there until you come back to pull it back out. They mark that you deposited $1,000 and then loan that money to another customer so they can earn a return on the interest. Banks rely on the idea that the majority of their customers will not come to withdraw all of their assets in a short time frame. They don't have enough money to repay all the money in their customers accounts. It's been loaned out or invested in other financial products. If too many people try to withdraw too much it can trigger a run on the bank as people panic and try to get their money out before the bank runs out of money to hand back.

In the U.S. there is a government protection for the majority of the populace against losing money due to a bank run. It's the FDIC (Federal Deposit Insurance Corporation). This protects up to $250k in each type of financial deposit category covered. So if an FDIC covered bank fails and you had $80k in savings there you won't lose your $80k.

Another source of funds is the Federal Reserve (in the U.S.). This is the bank that literally creates $$ and loans it to other banks. The cost of these loans affects almost all other loans down the chain. The Fed increasing its loan rates is one reason why mortgage rates and other loan rates have been rising over the last year-ish.

Capital One is a bank (technically a "bank holding company")

Ok, I think that puts it in a perspective I can understand

Lenders get funds from various sources, such as bank deposits and investors. You put money into a savings account and earn 1% while the bank lends that money on mortgages at 5% or credit card lines of credit at 20%. Institutional investors also buy baskets of mortgages, which act like bonds, and that means the banks again have money to issue more mortgages instead of having to wait for those loans to be paid off.

Banks receive money from savers and pay them an interest rate. They lend that money to borrowers at a higher rate, giving them their profit margin. Over time this difference in the rate helps them to build up reserves (some of which a bank will pay to its shareholders; a building society or credit union can decrease the difference in rates instead) which they can also lend to borrowers. The reserves will obviously need to be sufficient in case that everyone decided to get their money back at the same time, which is why they offer a better rate on fixed-term savings (1 year, 2 years) where you can't access your money at all during that term, ensuring that they don't need to worry about suddenly having to return it.

Banks lend out deposits that other people make. They also profit from this through the net interest margin - banks pay people for depositing into a savings account (usually <1%) and lend money at a higher rate through credit cards, loans, mortgages etc at a higher rate.

Generally there’s a low risk that everyone is going to withdraw their deposits at the same time, or that everyone will not pay their credit card bills. If that happened they’d be in trouble and would need support from central/federal bank. Because of this it’s relatively safe to lend deposit fund’s.

Another thing to mention: home mortgages (as well as student loans) are bought out by government programs (eg Fannie Mae). So the government then owns the loan, and gets most of the interest paid on it. This also frees up the original bank's money, so that they can continue making more loans.

Capital one is a bank