Why do banks push so hard for credit cards? Learn how they make money from them.

Credit card: Credit cards are a stable source of income for banks, which is why banks emphasize increasing the number of customers and boosting consumer spending.

Credit card: You'll often see people approaching you in malls or shopping centers offering credit cards. Besides this, you also receive calls about credit cards from time to time. Why do banks contact customers about credit cards? Why are people often told about the benefits of credit cards and encouraged to apply for them? What benefit does the bank get from this? Let's find out.

The credit card business is growing rapidly

The use of credit cards is increasing rapidly in India. Banks also offer various offers on them. A credit card means the user can buy anything from anywhere in the market on credit. They get approximately 45 days to make the payment. Cashback and rewards are also given for timely payments. This benefits the user, but the bank also profits.

How do banks make money?

According to RBI data, by the beginning of 2025, the number of active credit cards in India will exceed 110 million. Credit cards are like a business model for banks, which earn profits from interest rates and other charges. Sometimes, if the interest is not paid on time, an interest of 15-40 percent is charged on the outstanding payment.

In addition, banks earn a significant amount from credit cards through annual renewal fees, late payment fees, interchange fees, cash advance fees, balance transfer fees, and EMI conversion fees. This is why banks emphasize increasing the number of customers and boosting consumer spending.

What is an interchange fee?

When you buy something with a credit card, the bank also charges a 1-3 percent commission on the transaction from the merchant or shopkeeper. This is called the interchange fee. This is how the bank earns money. What are cash advance fees?

When you withdraw money from an ATM or bank using your credit card, a fee of 2.5-5 percent is charged on the withdrawal amount, and interest starts accruing immediately – there is no grace period. This means interest starts accumulating from the very first day, and no waiver is given. For example, if you withdraw a cash advance of ₹10,000 and a 3 percent fee is charged, the bank will immediately earn ₹300 as a transaction fee. This is in addition to the interest earned.

Credit Card Spending on the Rise

In January 2025, credit card spending in India increased by 10.8 percent to ₹1.84 trillion (₹1,84,000 crore), although this was slightly lower than the previous month. Credit cards offer several benefits to users, such as reward schemes, cashback, travel discounts, and the opportunity to build a credit score. Many Indians are now using credit cards to build their credit history, which is essential for obtaining loans in the future.

Regular bill payments improve your creditworthiness. Reward schemes like cashback and loyalty points encourage customers to spend more frequently. However, given the increasing instances of credit card misuse, the RBI and banks are tightening their regulations to ensure the long-term sustainability of this business.