How Do Credit Card Companies Make Money in the Philippines?

How do credit card companies make money? Do credit card companies make money if you pay in full? And how much money do they earn from credit cards? 

If you’re a credit cardholder, these questions probably popped into your head at some point. After all, they're important if you want to be a responsible credit card user. This article explains how credit card companies make money and how your transactions contribute to it.

How Do Credit Card Companies Make Money?

Credit card providers generate profits and sustain their business through the following charges:

💸 Interest

The first and arguably most obvious way banks profit from their credit card customers is from interest, particularly on missed or late payments. It’s where the majority of their revenue comes from.

But it doesn’t mean their systems are designed to trick cardholders. Credit card issuers offer automatic payments and send out reminders ahead of due dates to help their cardholders avoid debt.

💸 Credit Card Merchant Fees in the Philippines

When consumers pay for something with their credit card, a portion of this purchase is split by credit card interchange fees. The retailer gets a part of this, while the bulk of the amount goes to the bank that issued the card to you (such as BPI or HSBC).

Another portion goes to the association that manages your account (Visa, MasterCard, etc.). For instance, Mastercard charges a fee on credit card issuers based on their gross dollar volume of account holder activity.^[1] It also earns from switched transaction fees on authorization, clearing, and settlement, just to name a few.

There are also interchange fees that affect merchants more than the cardholder. These are fees that the merchant's bank account must pay whenever a customer uses a credit or debit card to pay for purchases from their store. They’re paid to the card-issuing bank to cover handling, fraud, and bad debt costs and the risk involved in approving the payment.^[2]

💸 Consumer Fees

These are generally categorized as fees associated with a credit card’s maintenance or additional features, such as the following:

• Annual fees
• Cash advance fees
• Balance transfer fees
• Late fees
• Foreign transaction fees

While these fees vary with every credit card and issuer, anyone looking to get a credit card should read the fine print, especially regarding the cash advance and balance transfer facilities.

How to Reduce Your Credit Card Fees and Costs

Without their customers, credit card issuers naturally won’t make any profits. You can control how much money they make from you by avoiding the extra fees or costs. Here are ways to do it:

✔️ Get a Credit Card with No Annual Fee

Annual fees are essentially membership fees, as they allow a cardholder to use the credit card’s facilities, such as rewards and cashback programs. Depending on the credit card, annual fees in the Philippines can range from ₱1,000 to as much as ₱6,000. If you get a credit card without an annual fee, that’s already thousands of pesos in savings.

So shop around for credit cards with no annual fee or those that offer waived annual fees when you meet the spending requirement. Compare your options below and apply through Moneymax:

Credit Cards with No Annual Fee	Key Features and Benefits
UnionBank Rewards Credit Card*	Monthly income requirement: ₱15,000 3x points when you shop and dine here and abroad 1 rewards point per ₱30 spend * No annual fee promo until June 30, 2024
Metrobank Titanium Mastercard®*	Monthly income requirement: ₱15,000 2x rewards points on online, dining, or department store transactions 1 rewards point for every ₱20 spend *Waived annual fee for the first year
Metrobank Platinum Mastercard®*	Monthly income requirement: ₱58,333 1 rewards point for every ₱20 spend Up to 50% off on premium dining offers *Waived annual fee for the first year
Metrobank World Mastercard®*	Monthly income requirement: ₱125,000 3x rewards points for every ₱20 international spend 1 rewards point for every ₱20 spend *Waived annual fee for the first year
PNB Ze-Lo Mastercard	Monthly income requirement: ₱10,000 Low interest rate of 2.5% No late payment or overlimit fees
AUB Classic Mastercard	Monthly income requirement: ₱50,000 1 rewards point for every ₱50 spend Payment flexibility
AUB Easy Mastercard	Monthly income requirement: ₱50,000 1 rewards point for every ₱50 spend Payment flexibility

✔️ Pay Your Credit Card Balance in Full

When you pay your balance in full, you avoid interest charges every month. Credit card companies charge interest if you carry your balance to the next month. This means you’re paying your unpaid balance plus interest. As much as possible, try to settle it in full every month.

✔️ Find a Credit Card With Low or No Interest Rates

Most credit cards in the Philippines bear an interest rate of 3%. Some, however, offer lower rates, such as this card:

PNB Ze-Lo Mastercard

• Waived annual fees
• 0% installment for up to 24 months at select PNB-affiliated merchants 

You can also consider credit cards with 0% interest installment payment terms:

Credit Card	Installment Perks
UnionBank Rewards Credit Card	0% installment terms of up to 36 months with UnionBank PayEasy
UnionBank U Visa Platinum	0% installment terms of up to 36 months with UnionBank PayEasy
Metrobank Titanium Mastercard®	0% interest installment plans of up to 36 months at partner merchants
Metrobank Platinum Mastercard®	0% interest installment plans of up to 36 months at partner merchants
HSBC Red Mastercard	0% interest for up to 36 months with the Card Instalment Plan
BPI Edge Card	BPI Real 0% Special Installment Plan

This will help you finance your purchases without having to set aside a budget for sky-high interest rates as well. 

Read more: Save More: Credit Cards with No Interest or the Lowest Interest Rate

✔️ Get a Cashback Credit Card

With a cashback credit card, a percentage of your money spent is given back to you. Most providers offer cashback for specific categories, such as groceries, dining, shopping, or fuel. Depending on your chosen credit card, you can save up to ₱12,000 annually through cashback.

See some of your best options below:

Credit Card	Cashback Rates
Petron BPI Card	3% fuel rebate at Petron Maximum fuel rebate of ₱15,000 per year
BPI Amore Cashback Card	4% cashback on supermarkets and department stores 1% cashback on drugstores and utilities 0.3% cashback on other local spend
BPI Amore Platinum Cashback Card	4% cashback on restaurants and online food delivery services 1% cashback on supermarkets and department stores 0.3% cashback on other local and international spend
Security Bank Complete Cashback Mastercard	5% cashback on groceries, 4% on gas, 3% on utilities, and 2% on dining As much as ₱12,000 cashback annually

Read more: Earn Cashback and Points With the Best Credit Card for Groceries

Wondering how credit card companies make money on cashback?

Cashback programs incentivize credit card users so that they’ll use their cards more often. The more they use their credit cards, the more merchant fees credit card companies can earn. Make sure to use your card wisely so you can maximize its benefits but avoid overspending. 

✔️ Avoid Late Fees

Late fee charges are one of the biggest reasons you should pay on or before your due date. Credit card companies charge high late fees on top of your total amount due.

Avoid paying the hefty late charges by automating your payments and setting up electronic alerts. This way, you’ll get notified when your next credit card payment is coming up.

✔️ Set Up an Emergency Fund

Aside from late payments, your credit card company earns every time you make a cash advance. You get charged a 3% to 5% cash advance fee, which can be significant if you borrow a considerable amount.

Don’t make it a habit to withdraw cash from your credit card whenever there’s an emergency expense. Instead, set up an emergency fund to cover unplanned expenses. This way, you won’t be in debt from costly cash advance fees.

✔️ Choose a Credit Card with No Balance Transfer Fees

Planning to get another credit card to pay off your existing balance? If you’re getting weighed down by high interest rates on your credit card balance, you can transfer your balance to a new credit card.

Compare your options and get one with the lowest balance transfer fees. Some banks also offer zero interest rates as an introductory promo. Below, find the right credit card so you can maximize its money-saving benefits:

Credit Card	Balance Transfer Features
UnionBank Platinum Mastercard	Balance transfer rate: 1% Installment terms: 6 to 60 months Minimum balance transfer amount: Inquire with UnionBank
Metrobank Titanium Mastercard®	Balance transfer rate: 1% Installment terms: 3 to 60 months Minimum balance transfer amount: ₱6,000
HSBC Red Mastercard	Balance transfer rate: Prevailing monthly interest rate, depending on the chosen repayment period Installment terms: Up to 24 months Minimum balance transfer amount: Monthly installment amount of ₱500
Security Bank Gold Mastercard	Balance transfer rate: 1%  Installment terms: 3 to 24 months Minimum balance transfer amount: ₱5,000
BPI Edge Card	Balance transfer rate: 0.99% (36 months) / 1% (6 to 24 months) Installment terms: 6 to 36 months Minimum balance transfer amount: ₱3,000

Final Thoughts

Credit cards are convenient tools when used correctly and responsibly. Otherwise, it can land you in a cycle of debt that's difficult to get out of.

Now that you know how credit card companies make money, use your card wisely. You can minimize how much they make off you and maximize your card's benefits by avoiding certain fees and charges.

Sources:

• ^[1] How Mastercard Makes Money (Investopedia, 2023)
• ^[2] What are interchange fees and how are they calculated? (Big Commerce)