Bank credit cards are credit cards you get through your bank. The bank issues you the card and the line of credit.
We all know the names of the major credit card companies: Visa, MasterCard, American Express, and Discover.
But two of those companies work independently from banks that also issue credit cards to people.
Those two companies are American Express and Discover. They are part of what is called a “closed loop” network. What is a “closed loop” network?
What that means is that all three parts of the model are owned and managed by the same company. That includes the card issuer, the merchant acquirer, and the payment network.
The model we want to focus on, though, is what is called an “NCL Model” which is the model banks use.
With the NCL Model, there is a different party in charge of each of those pieces. For instance, Chase issues the card, another party (which you’ve likely never heard of) manages merchant acquisitions, and another company (usually Visa or MasterCard) manages the network processing.
Bank credit cards are the most common type of credit card. Banks are always encouraging their account holders to sign up for a line of credit. Usually, they will offer two different types of credit cards: low-interest credit cards and rewards credit cards.
Low-interest credit cards are meant for people that don’t pay off their balance every month.
Rewards credit cards are for people that pay off their balance every month and want to earn points for their purchases.
Banks make money from these two different types of credit card accounts in different ways.
For low-interest credit card accounts, they make their money from the difference in interest they pay the customer on their deposits and the interest they charge for the credit card. So, if they are paying the customer 0.05% interest on bank deposits and they are charging 14.99% on the line of credit, they are earning 14.94% interest on that line of credit.
Banks make money from credit account holders that pay off their balance every month through “swipe fees.” On average, they charge 2% – 3% for every swipe the customer makes for purchases. They determine this rate based on the type of credit card, the type of merchant, and even the size of the merchant plays a roll.
A majority percentage of the “swipe fees” goes back to the bank. A smaller portion goes to the merchant acquirer.
Most banks use a similar process for getting a credit card from them. Of course the person that is trying to open an account first needs to apply for it, same as a non-bank issued credit card.
Each bank has its own set of terms and conditions and they usually require good credit standing to get a credit card through their institution.
What credit cards look like
The card has a sequence of numbers in raised print on the front of the card along with the date of expiration of the card. The credit card company logo is displayed on the bottom right. The issuing bank usually has their logo displayed across the top of the card or as a backdrop.
Banks have started issuing chip cards to their existing credit card holders which have a microchip embedded on the front left, usually on the opposite end of the card of the credit card logo. These chip bank credit cards, at least for the moment, still have the magnetic stripe on the backside of the card.
Many banks also offer “pre-paid” credit cards where the customer has a certain amount deposited into the credit account from their bank account, which serves as “insurance” in case they fall behind on payments. This ensures the bank isn’t losing any money because the prepaid amount protects them from being held liable for unpaid purchases.
These types of accounts are especially helpful for those who don’t have good credit standings or don’t have enough credit to be approved for a normal credit card. Consumers can use them anywhere major credit cards are accepted the same as a normal credit card.
Each card has a logo such as Visa or MasterCard on the front and looks exactly like a regular credit card.
There are fees attached to most of these types of bank-issued credit cards, but all someone needs to do is look up a list of banks that offer them and they will show you all the fees associated with each one.
The terms and conditions for normal bank issued credit cards vary and interest rates are different depending on what bank and what type of credit card it is. The best thing to do for someone interested in getting a bank credit card is read the “fine print.” Especially the part about the interest rate. You’ll thank us later.
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