Whether a credit or debit card is used to make a payment at a merchant, there will be outflow of money from the bank. What extra benefit do the bank get from promoting credit more than debit card?

Is it just the obvious answer that by promoting credit card, there is a chance that user will default on the payment and allow bank to charge interest?

On the downside, by paying through credit card, the user still has money in her savings account and so from bank has to maintain higher reserve ratio with the central bank.

Finally, does it have something to do with the fee bank charges with merchants? Is the fee higher for use of credit cards as compared to debit cards?

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    $\begingroup$ Competition. Non-banks can give out credit cards, and it is easy to migrate cards. The all have to give perks to attract customers. Only a bank can offer a debit card, and customers are typically tied to a bank via owing the bank money (mortgage, etc.), or because the branch is close, etc. $\endgroup$ Oct 10, 2020 at 13:42
  • $\begingroup$ Thanks for pointing this out. I understand that NBFCs can also issue credit cards but in most countries, such as India, the market share of NBFCs in credit cards is rather small. More importantly, it is evident that banks also aggressively compete with each other. Second point, even if the problem is competing with NBFCs banks can still counter the competition using debit cards. Question is why, for a bank, it is preferable to give out credit card over debit card? $\endgroup$
    – Dayne
    Oct 10, 2020 at 14:15
  • $\begingroup$ It’s still easy to add a credit card at a different bank, at least in North America. It’s just another bill to pay. Transferring money to another bank to cover debit card expenses defeats the purpose of a debit card. $\endgroup$ Oct 10, 2020 at 14:23
  • $\begingroup$ That makes credit card attractive for consumers. For banks, it gives an incentive to make more customers even if they don't have an account with them. But what do they gain from these customers? Merchant charges through transactions? $\endgroup$
    – Dayne
    Oct 10, 2020 at 15:10
  • $\begingroup$ They are essentially refunding a portion of the fees they earn on the credit card to the consumer. $\endgroup$ Oct 10, 2020 at 15:15

1 Answer 1


Yes of course you are right about both of your points. The fee charging the credit card POS transaction is about 2% to 3% depending on the company. The fee charging to debit card transaction is about flat 25 cents or lower.

For online transaction, the credit card fee can be as high as 4%, and the debit card fee can be negligible. Banks make more money on credit card.

So, to answer your question:

  1. Credit department usually have more money to make promotions.
  2. Average people (in US) have almost zero savings so they cannot use their debit card very often. But everyone has a credit card.
  3. Of course, credit card can default, and the bank can legally charge hefty interests.

And as mentioned by Brian, competition is an important reason.


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