What Is Most Profitable For Banks Debit Cards Or Credi Cards?
Debit cards tend to overdraft, and banks made more than 44 Billion last year.
Credit cards charge the merchant 1%, and almost half of the people that use them carry a balance and pay interest.
Which is more profitable – $35 overdraft fees, or interest on 40% of the population.
Keep in mind – almost 60% of people have never carried a balance or paid interest.
Short answer: Credit cards are more profitable.
That answer would depend on a couple of factors. First, whose profitability are we discussing? Different banks have different ratios and quantities of credit and debit cards, as well as varying degrees of creditworthiness in their customers.
In general, I would argue that credit cards are more profitable. Although many people do not carry credit cards or credit card balances, the average American has $8400 in credit card debt, and interest rates are high. Still, this must be balanced against defaults, in which the buyer never pays back his or her debt in full.
Let’s use Bank of America (BofA) as an example firm. According to its 2008 report, credit card earnings are down and debit card earnings are up. Still, credit card earning appears to be higher, as its “card services” division (which includes both credit and debit cards) earned about twice as much from interest income as from non-interest sources like service fees. And those service fees would include credit cards, whereas interest fees presumably don’t include debit cards.