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The Structure of a Credit Card Company

By: Emma Eilbeck BA (hons) - Updated: 12 Sep 2012 | comments*Discuss
Credit Card Issuer Retailer Company

When it comes to the food chain within the credit card market, the credit card issuer sits right at the top. The issuer is the one that benefits from every transaction that is carried out on a credit card and controls who has the credit card and how its gets distributed.At the bottom of the chain is the unsuspecting consumer, the one that is doing the spending on the card.

Credit card issuers are the ones that own the different credit card makes, and they will outsource the credit card logo and brand name onto retailers, such as banks, shops and supermarkets, which will then brand the card in their own way.

The credit card issuer will charge a retailer an interest rate for using the card and they will make a profit from every transaction that is made on a card issued by that retailer. In turn for this, the retailer will then charge the consumer an interest rate higher than the one that they are being charged by the credit card company, so that they are able to make a profit.You might ask, is there really enough profit in this for the retailer to bother offering a credit card?

How the Retailer Makes Money

The retailer will have to pay a certain percentage to the card issuer, but they will always make sure that they are charging the customer more than they are being charged. The retailer will also have to be responsible for any other costs that will go with the promotion of the card and extra costs such as customer help lines.

One of the biggest benefits for banks and supermarkets is that if they have their own branded credit cards, then it may mean that people ultimately spend more money if they think that they will not have to pay it back until a later date. As well as this, if a person is using the credit card outside of their store, they are still thinking about that one retailer every time they spend, because their name appears on the credit card, so it’s also free advertising.

Unique Credit Card Company Structures

There are some credit card firms that will act in a different way and operate as both the credit card issuer and the retailer. In this case, the credit card issuer will brand their card and not commission it out to anyone else.

This type of credit card issuer is very popular with businesses and corporate organisations, because they charge a relatively low interest rate to the customer, but they instead make their money by charging the vendor a lot of money to process the transaction.This can cause problems, for a lot of retailers it will be a Catch 22 situation, if they don’t accept that type of credit card they may loose out on custom from large firms, however if they do accept the card then they may have to pay hefty bills to process the transaction.

Competition between the credit card issuers and firms that produce credit cards is big business, a lot of people are not aware that the credit card they are using may not belong to the actual firm that they signed up to it with, they will be using the facilities of the issuer. So if you think that by signing up to a bank’s or a supermarket’s credit card that it is their money you are using, to some extent you would be wrong, they are just another chain in the food chain of the credit card issuer.

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