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Comment by skhunted | Hacker News Reader

I think in the U.S. the most profitable customers of credit cards are the well to do because they buy so much more than poorer people.

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Credit card companies make a decent amount of their money from the interchange fees, but the majority of their income comes from interest, cash advance fees, and penalty fees, all of which the well-off credit card user paying off their balance each month does not contribute to. So credit card companies are probably making more money off their less-well-off users as a group than the more-well-off, though it may still be that individual well-off users are more profitable than other individuals.

> Credit card companies make a decent amount of their money from the interchange fees, but the majority of their income comes from interest, cash advance fees, and penalty fees, all of which the well-off credit card user paying off their balance each month does not contribute to.

Those customers are called Deadbeats[1]. All credit card customers should strive to be Deadbeats.

[1] https://www.investopedia.com/terms/d/deadbeat.asp

In my mind, this implies that the vast majority of customers are not deadbeats - meaning they never pay off their cards in full and always have interest?

My understanding is that 25-30% of all credit card customers are deadbeats. I've worked with some fintech companies and that number came up in some discussions. I cannot, however, find a corroborating source.

Worth noting that this varies heavily by issuer - I checked out the most recent 10Ks for Amex and Discover (Visa and MC are networks and as such, operate off interchange, not interest, and I tried looking at Chase's 10K but it was too complicated for me to figure out the revenue breakdowns for their consumer card business)

* Amex had 67b in interest + non-interest revenue, of which the single biggest driver was discount revenue (aka interchange) at 33b. Interest contributed 20b, card membership fees contributed 7b, and services fees and other were ~7b combined. Amex's target base is wealthier individuals.

* Discover had 14.4b in credit card interest revenue and 1.4b in net discount and interchange revenue (meaning after paying rewards). Discover caters mostly to what the financial industry would euphemistically call "subprime" creditors.

There are also well-off people who don't watch their bills super closely and accidentally pay fees. Autopay is disabled by default, and default autopay mode is often "min due," which results in interest owed. Or they charge random bs fees people let slide.

Ah yeah that's fair; I was thinking more interest and penalties but I guess taking a percentage on all transactions almost certainly would work out to be more

These days, credit card issuers usually specialize on a specific segment of the population with each product. That's why the availability of each given card offer heavily depends on the prospective customer's credit score, disposable income (hence issuers asking for both yearly income and housing payments) etc.

On top tier cards, interest and late fees are not the intended way to make money on the majority of cardholders (although of course banks will still charge them for customers that do carry a balance). On lower tier cards, you'll often see less rewards points or even annual fees without any corresponding benefits (i.e. no lounge access, no rental car insurance etc).

For example, American Express has traditionally focused on higher-income cardholders, and their top tier cards are charge cards, which are always due in full at the end of each statement period (i.e. carrying a balance is not an option). They don't even list an APR, as far as I remember (although they've recently started offering an option to carry certain purchases, making that story a bit less clear).

My understanding is that goldman sachs, who operates the apple card under the hood, is trying to get out of the deal because they lose money on it.

I presume that the type of person who wants an apple card is strongly negatively correlated with the kind of person from whom they could make lots of money via fees from. I would bet my apple card balance that the percentage of apple card customers who religiously pay off their balance every month is much much higher than industry average.

Not to interrupt the "Apple buyer are sophisticated high status individuals" talk but Goldman is losing money on the Apple card precisely because they are lending to people that can't make the payments.

There were reports (OTOH from late 2023 or early 2024) that GS not being a consumer-facing credit business created a lot of headaches and need for spending.

GS did have some other cards before Apple Card, but they were not generally marketed or widely available to the masses like Apple Card. GS wasn’t well prepared for the extra overhead and customer support, and Apple negotiated a _lot_ of power that GS agreed to give them in areas like underwriting decisions. Apple wanted applications approved and many approvals wouldn’t have met with GS’s typical risk tolerance.

Apple also reportedly wanted GS to approve everyone possible and be looser on their standards, which wouldn’t help keep away the worst customers.

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