The surge in credit card usage in India mirrors a growing trend fueled by robust consumer activity. To seize this opportunity, credit card companies are introducing enticing offers, including Lifetime Free Credit Cards, discounts, and airport lounge access. While these perks attract new customers, the challenge lies in how credit card companies recoup the expenses associated with these incentives.
One primary avenue of revenue for credit card companies is through the imposition of various fees. Cash advance fees are levied when customers withdraw cash from ATMs using their credit cards. This discourages cash advances, deemed riskier for issuers, and helps recover costs associated with providing this service.
Processing fees are applied when customers opt for EMI schemes, adding another stream of income for credit card companies. In addition to processing fees, annual and renewal fees contribute to their revenue. Although these fees are often waived for customers surpassing a certain annual spending threshold, they remain a significant income source.
Credit card companies also generate revenue through balance transfer fees. When customers transfer debt from one credit card to another seeking a lower interest rate, a balance transfer fee, typically ranging from 3% to 5%, is applied. Some cards may offer temporary waivers or complete exemptions from this fee.
Late fees are another revenue stream, imposed on customers failing to pay at least the minimum amount by the due date. While some cards may provide initial waivers, repeated late payments can harm the customer’s credit score.
To break it down further, annual fees are typically associated with high-reward cards or those designed for individuals with imperfect credit. These fees help offset the costs of rewards and other associated benefits.
In the realm of cash advances, fees ranging from 2% to 5% of the withdrawn amount act as a deterrent. Balance transfer fees, on the other hand, help compensate for the potential loss of interest income when customers transfer debt.
Despite these fees, credit card companies strategically balance the scales by offering valuable incentives to customers. However, consumers must remain vigilant, managing their credit responsibly to avoid unnecessary costs associated with these fees.
