Credit vs. Charge Cards - The Issuer's Perspective

If you’re a consumer who’s trying to understand the difference between a credit card and a charge card, there is plenty of information out there on which product makes the most sense for you. However, if you’re looking to launch your own card product, the pros and cons of launching a charge card vs. a credit card from an issuer perspective are not as easy to find.

At Apto, we’re often asked about the differences between credit and charge cards by many customers. Here’s our take.

Charge vs. Credit - It’s a Balancing Act

The main difference between charge vs. credit cards is how balances are treated by your cardholders at the end of each month. 

Charge Cards

If you launch a charge card, you should expect your users to pay off their balances at the end of each month. 

What this means for you: 

1. Lower capital requirements: Your capital requirements won’t be as high because you expect to be able to settle with the networks with the amount of money that is paid back by your users on a regular basis.
2. Less regulatory scrutiny: Charge card programs generally face less regulatory scrutiny.
3. Faster launch timeline: Generally, these programs are much easier and faster to launch because you don’t have to receive as many regulatory approvals or compliance approvals from sponsor banks.

Credit Cards

If you launch a credit card with a revolving balance, you should expect that some of your users will pay off their balance in full at the end of each month, while others will pay only the minimum amount due.

What this means for you: 

1. High capital requirements: You must be able to settle with the networks regardless of whether your cardholders pay off their balances in full at the end of each month. This means you will likely have very high capital requirements to maintain. 
2. Complex interest rate calculations: You will have to deal with the complexity of calculating interest rates for users who do not pay off their balances in full. This will impact your cash flow, your revenue model, profitability projections, etc.
3. Intense regulatory scrutiny: Consumer credit is the most heavily scrutinized card program you can launch. Expect to deal with the Consumer Financial Protection Bureau (CFPB) on a regular basis.
4. Slower launch timeline: Because of the additional scrutiny by regulatory agencies and your sponsor bank, you should expect a longer time to market if launching a credit card vs. a charge card program.

There are pros and cons to both types of cards. Ultimately, you want to launch the card that’s the best fit for your capabilities and your target cardholder demographic. If you’re targeting a higher-income demographic that values flexibility, for example, it might be worthwhile for your business to take on the additional complexity of revolving balances and interest rate calculations that come with launching a credit card. However, if you’re targeting customers who are incentivized to pay off their balances in full each month (perhaps a small business that is extremely sensitive to cash flow), then launching a charge card could save your team hours of additional work in terms of managing unnecessary complexity.

If you’re interested in learning what type of card product would be the best fit for your business and whether leveraging a debit BIN can be a faster way to market, reach out to an expert on our team.