Bank credit cards are a highly profitable business for the financial institutions involved. The companies make a substantial profit from the accrued interest on the revolving debt, mainly acquired by consumers not paying balances in full each month, plus through a number of charges and fees, such as penalties for late payments, over-the-limit fees, and annual membership dues.
The term "bank card" can refer to either a debit or credit card. Personal bank debit cards are generally tied to deposit accounts, such as checking and savings. Bank credit cards, which generally encompass the majority of general-purpose credit cards available to American consumers, are tied to accounts of revolving debt. Other types of credit cards, often issued by financial institutions, include store cards and gas cards. For example, many of the major department stores issue a line of revolving credit to their customers that can only be used to shop with them. The same holds true for many gas cards; the credit is available only if you purchase a company's specific brand of product.
A bank credit card account is a line of revolving credit offered by the bank to the cardholder. The bank backs the consumer's purchases. When a consumer swipes a credit card at the checkout register to make a purchase, the bank pays the merchant and extends a temporary loan to the consumer. Merchants are charged a fee for the service by the banks that process their credit transactions when the amount of the purchase is debited to the buyer's account and credited to the merchant's account.
Processors and Issuers
Two big credit-card payment systems in the United States that process bank credit card transactions -- once owned by the member banks that used their services -- have become public companies: MasterCard in 2006 and Visa in 2008. Visa and MasterCard, now owned collectively by stockholders, process credit card, as well as debit-card transactions, for thousands of banks and merchants around the globe. Banks and other financial institutions issue the cards. For example, a bank credit card may have the name of a local bank and MasterCard written on the front, or it may have a neighborhood bank name and Visa printed on the front. In these two examples, the local bank is the bank extending revolving credit to the customer, MasterCard is the processor, and the neighborhood bank is the lender of a revolving credit account, processed through Visa.
According to CNBC, the top 10 credit card issuers in the world, using data through December 2009, were: 1. Bank of America/MBNA; 2. Chase; 3. Citi; 4. American Express; 5. Capital One; 6. HSBC; 7. Discover; 8. Wells Fargo; 9. Barclays; and 10. Lloyds TSB/HBoS. Bank of America issues credit in the United States, Canada, the United Kingdom, Ireland, and Spain. However, in the United States alone, Chase is the largest issuer of bank credit cards and Citi is second.
- Federal Reserve Bank of Boston: Who Gains and Who Loses from Credit Card Payments? Theory and Calibrations
- "Finance: Investments, Institutions, Management"; Stanley G. Eakins, 2005