Credit card companies try to lure in potential new cardholders by offering more and better rewards programs than their competitors, with some companies offering up to 10% back on purchases. These rewards can be used for free airline tickets, retailer gift cards, or account credits.
Following the economic crash of 2008, many Americans closed their credit card accounts, so issuers had to increase the benefits to try to attract new card users. Now, as the number of open credit card accounts is nearing pre-crisis levels, many wonder if card companies will start to decrease the benefits of rewards programs. Part of this speculation relates to the large number of card accounts, and another part to the push from retailers to put a limit on interchange fees.
The interchange fee is the percentage of a sale that the card issuer charges the retailer. If the retailer makes a sale for $100, the interchange fee may be around two percent. This means the retailer only makes $98 from the sale, while the card issuer gets the other $2. It may not seem like a lot of money, but it does add up and affects the retailer's profit margin. This fee provides the card issuer with some of their profit and goes to fund rewards programs.
If you want more credit, check out MoneyTips' list of credit card offers.