Credit card: In the mall or shopping center you will see people approaching for credit cards. Apart from this, calls for credit cards also come on the phone from time to time. After all, why do banks contact customers for credit cards, why are people often asked to apply for credit cards after enumerating their benefits? After all, what is the benefit to the bank from this? Let us tell you.
Fast growing credit card business
The trend of credit cards is increasing rapidly in India. Various types of offers are also given by the bank on this. Credit card means that through it the user can buy anything on credit from anywhere in the market. Approximately 45 days are available for payment. Cashback and rewards are also available on timely payment. This not only benefits the user, but the bank also remains profitable.
How does a bank earn?
According to RBI data, by the beginning of 2025, the number of active credit cards in the country will be more than 11 crore. Credit cards are like a business model for banks, which earn profits from interest rates and other charges. Many times, if the interest is not paid on time, 15-40 percent interest is charged on the outstanding payment.
Apart from this, the bank also earns a good amount of money from the credit card in the name of credit card annual renewal fee, late payment fee, interchange fee, cash advance fee, balance transfer fee, EMI conversion fee. This is the reason why the bank emphasizes on increasing the number of customers and increasing consumer expenditure.
What is interchange fee?
When you buy something with a credit card, the bank also takes 1-3 percent commission on the transaction from the merchant or shopkeeper. This is called interchange fee. The bank earns money from this.
What is cash advance fee?
When you withdraw money from ATM or bank through credit card, a fee of 2.5-5 percent is charged on the withdrawal amount and moreover interest starts accruing immediately i.e. there is no grace period. Meaning interest starts accruing from the same day and no discount is available. Suppose you have withdrawn cash advance of Rs 10,000 and if 3% fee is charged on it, then the bank will immediately earn Rs 300 in the name of transaction fee. On top of that, there will be additional income from interest.
Increasing credit card expenses
Credit card spending in India increased by 10.8 percent to Rs 1.84 trillion (Rs 1,84,000 crore) in January 2025, although it was slightly lower than the previous month. Credit cards offer many benefits to users, such as reward schemes, cashback, discounts on travel and opportunity to build credit score. Nowadays many Indians are building their credit history by using credit cards, which is necessary for taking loans in future.
If you make regular bill payments, it improves your creditworthiness. Reward schemes like cashback and loyalty points encourage customers to spend repeatedly. However, in view of the increasing cases of misuse of credit cards, RBI and banks are tightening their rules so that this business can continue for a long time.
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