Why Do Only Credit Cards Have So Much Discount?
This question is a very interesting question. I knew it from a long ago. Recently i thought this topic deserves an article on it. Now let’s get back to the topic. If you ask this question to anyone you think having financial intelligence, most of them will either give you bad answers like there is a partnership between credit card issuer and the product selling brand, they encourage you to shop more etc. The question doesn’t really get answered because when you pay be cash, you are not being given the discount, but when you use your credit cards you might get a discount as high as 15-20%. Have this question ever come across your mind? It’s actually a serious question and the answer is even more serious. You must be very curious at this point to figure out the real reason behind why do only credit cards have so much of discount whereas no other payment systems bring in such huge discounts. Let’s dive deep.
In order to realize this, you need to understand how banking system actually work and you have to go beyond the mainstream narrative to properly understand it. You will have to understand how fraction reserve banking works, then only you wil get a clear idea about it. Now let me make you understand in a simpler way. When banks issue credit cards in your name, they create the right to digitally print money as per the credit limit provided. If you have a credit limit of 1 lac Indian rupees, banks create the right to print 1 lac Rs when the card is issued to you. Mind you it’s not physical printing, it’s digital printing. When they issue credit card in your name, they get the opportunity to insert digits in the seller’s account, and you get to repay the amount with certain interest.
So why the discount is only for credit cards? Because if you don’t use credit cards, banks will not get the opportunity to print money in a digital way. Yes, they print digitally when they sanction any kinds of loans in your name as well. But it is impractical to sanction loans every time you want to purchase something. That’s why the credit card. Now, if you repay only half of the amount you spend, credit card issuing banks do not end up in loss, they actually make profit because they created the credit card and the right to insert electronic money out of thin air. This is applicable to any kind of loans as well. So, there is a bigger profit for the banks when you use your credit card, that’s why they can offer such a huge discounts.
You get bigger discounts in using credit cards because you are helping banks to create digital money which they print out of think air and offer it to you with interest. Even if you pay the same within credit card billing cycle, still they make profit because they gave you the loan off of digital printing. It’s not their own money, not any customer’s money as well. Hope you get the drift. You will have to go deeper on fraction reserve banking and read between the lines in order to understand and realize why do only credit cards have so much of discounts.
