Credit card companies want to make money, which means that advertisements that include incentives for customers, such as cashback on transactions carried out using their credit cards, must somehow be to their benefit as well as the consumer.
Many customers in the United Arab Emirates are attracted to online offers and mailers that offer incredible incentives that have low introductory interest rates.
Sometimes these rates are even as low as 0% – or offer bonus reward points to new customers that choose to begin using a particular credit card.
Credit cards with incredibly generous cashback deals have become a commonplace incentive offered to customers by UAE banks and often continue after the bonus introductory period has come to an end.
One example of this is Citibank, which offers as much as 10% cashback whenever their credit card is used.
One thing that many customers may wonder is how such attractive deals can be offered by these banks and credit card companies in the UAE while still making a profit?
There are a number of ways that credit card providers are able to make money.
One method is that a merchant that accepts payment via a credit card has to pay some of that transaction amount to the credit card provider in the form of fees.
If the cardholder is participating in a cashback programme, the provider just shares some of those fees with the cardholder.
This is a good method to give customers the incentive to make payments with credit cards rather than cash or debit cards, neither of which results in rewards.
The more customers make use of their cashback credit card, the more merchant fees the credit card provider is able to earn.
There is an annual maximum limit on a lot of cash reward plans, which means that if a customer spends more than the card’s annual cap, they will not get any more cashback.
Credit card providers are also able to make money by levying high interest rates on the credit card in addition to charging late payment fees on balances, which will be carried forward on a monthly basis.
The more credit cards are used by cardholders, the greater the likelihood is that they will miss a payment and will then end up having to pay fees and interest.
Anyone who has been a credit card user in the UAE for a long period of time is likely to be aware that cards that sound very promising and offer the best-sounding rewards often come with high interest rates and big fees.
The difference is particularly obvious when such cards are compared to credit cards that offer few or even no rewards.
While a cashback credit card can be a tantalising prospect, the rewards can become less generous than the advertisements make them seem when taking into account maximum cashback limits that can be earned.
Cashback credit cards exist to make more money for the credit card provider, so users need to read the fine print before deciding to get one.
