[CRFSaver]

Actually, Visa and MasterCard dont lend the money out but just provide a network for those transactions to settle. Each individual bank is required to fund those credit card balances through capital they allocate it, either through retained equity, deposits, CD's, unsecured funding or through the securitization market.

There is a reason rates are set at 18 or 19 percent. So an average funding cost of 3-4%, net charges offs of between 4-7% means the credit card companies cost is between 7% and 11%. (People forget that the CC take losses on those loans of between 4.5 to 8.5%.) So if they charge 18%, they are making between 7-11% on those balances. That doesnt include the capital a bank has to hold off to the side that the OCC or Fed require.

Credit cards as an asset class are quite a bit riskier then a mortgage as there is no collateral backing the loan being made. Because it is riskier they are going to charge more. Just like a sub prime borrower pays more then a prime or super prime borrower. Dont get me wrong, they still make great money. But it is not like they are making 15% on those 18% rates.

A revolver is someone who maintains a balance, or what is refered to as a revolving balance. A transactor is someone who uses the card to make purchases, and then pays the balances off. CC companies still make money off of transactors due to the interchange and discount that merchants pay.

In fact to pay for some of these reward programs for consumers, Visa and MasterCard are classifying many of the rewards credit cards as "Signature Cards", with a higher interchange. That is why so many places dont take American Express due to the much higher interchange.

You look at a company like Wells Fargo that has dirt cheap funding (they are rated AAA)definately has an advantage over an MBNA or Capital One (both BBB) or even a Metris (BB), when it comes to funding costs.

Hope this helps explain some of these things.