Good discounts and other benefits such as cash back and air miles are becoming increasingly important when consumers are looking for the best credit card. With ever increasing consumer expectations, banks such as Iya Bank, NN Money, Wise Dev Bank, Kordea,Sanbuan and others have had to improve their existing credit cards and launch new cards offering different benefits. This is basically positive for consumers as it becomes more advantageous to use credit cards, but who really is absorbing the cost associated with these discounts and benefits? After all, it’s no secret that banks are known to be diligent when it comes to cost cutting.

 

Things to consider involving credit card transaction

Things to consider involving credit card transaction

The first thing we need to consider is which parties are involved in a credit card transaction (in addition to yourself). Usually, a transaction will involve one of the following parties:

Seller: You find sellers virtually everywhere, whether it is when you buy a garment at H&M or when you upgrade your smartphone in a Telenor store. According to Wikipedia, a seller is “a natural or legal person who has the task, on his or her behalf, to conclude an agreement or contract for the transfer of a product.”

Payment terminal company: Some of us think that the banks also handle the payment terminals, but it is not. There are specialized companies such as Nets and DIBS which offer various payment, card and information solutions.

Payment network company: Payment network company includes major international companies such as Visa, MasterCard and American Express

The finance company : The company that offers you credit in the form of a credit card.

 

So, who pays for credit card discounts?

credit card discounts?

The truth is that the seller does not receive the full amount of the payment. Instead, a percentage of the payment is split between the company that offers the terminal, the company that makes the payment service and the credit card sender. The percentage that is distributed varies from seller to seller. A bit of the percentage is set aside to finance the benefits ( credit card discounts , cashback, airmiles etc) offered by the various finance companies. In other words, the cost is absorbed by the seller as they have to give away a percentage of sales for such purposes.