Lifetime Free Credit Cards: How Do Banks Make Money?

Today, it is nearly impossible to imagine life without credit cards as they have evolved into an important element of banking, allowing people to carry them comfortably, use them for multiple purposes, and get the benefits of worldwide rewards programs. While most credit cards have annual fees, some banks allow customers to have their credit cards and avoid any annual fees as long as they are credit card holders. It raises the question: do banks make money by giving a lifetime free credit card? This article will effectively enlighten you on this question.

What is a  Lifetime Free Credit Card? 

The lifetime free credit cards include cards with no annual fee policy for as long as the cardholder uses them. You can still get the benefits of cashback, reward points, discounts, deals, and travel perks without paying any yearly fee. You can still choose the kind of credit card you want in this category and ensure that your card aligns with your lifestyle and spending habits. 

Revenue Streams for Banks

Following are how banks make money by offering a lifetime free credit card. 

Interest Income

Interest is the primary income source that usually flows from credit cardholders who carry a balance on their credit cards to banks. Although lifetime free credit cards are attractive features as they do not have an annual fee, they incur interest charges on unpaid amounts. By collecting cash advances and balance transfer charges, banks manage to maintain interest rate revenue. Therefore, banks can profit from cardholders who carry balances and accrue interest charges, even without annual fees.

Transaction Fees

An income bank receives money from transaction fees charged to merchants for credit card transactions. When the credit card holder purchases services through their credit card, the bank generates a small portion of the transaction cost, called an interchange fee. Such fees seem insignificant, given the low amounts per transaction; however, they generate sizable incomes for banks with a huge customer base and grant people lifetime free credit cards.

Late Payment Fees

Another type of revenue that banks make is the late payment fee imposed on credit card users when they are late paying their bills. However, those who always pay on time can still use lifetime free credit cards without having annual fees imposed. But they might still pay penalty charges for late payments.

Foreign Transaction Fees

Moreover, banks may also earn financial revenues as cardholders pay the foreign transaction fees for purchases in a foreign currency or outside the country. These costs are commonly between 1-3% of the transaction value and partly contribute to the bank’s total revenue. You will enjoy using a lifelong free credit card because while it might not charge you annual rates, its foreign transaction fees could bring revenue to the banks worldwide.

Additional Services

Some banks may incorporate other services and functionalities into the lifetime free credit card packages, like insurance coverage, airport lounge access, concierge services, and reward programs. While these benefits may not generate revenue, they ensure more transparent payments, brand reliability, retailer insights, increased transaction volume, and bank interchange revenue.

Risk Management

By giving away lifetime free credit card customers, banks intend to gain these customers and make them loyal. However, banks should also address the risks associated with the move. Providing credit card usage without charging an annual fee may indirectly contribute to increasing the risk of default or delinquency among cardholders, especially those with lower credit scores or unstable financial situations. Read more...