Why credit cards are sold through banks and not from Visa or MasterCard directly
Visa and Mastercard are not consumer-oriented companies. They do not consider individual consumers as their direct clients, and do not sell directly to them. Instead, their clients are financial institutions who participate in their networks (which is what they're selling). The institutions target the individual consumers (merchants and credit card holders). American Express, for example, has a different business model. AX doesn't only sell network services to financial institutions, but also services to individual consumers. You can get a AX credit card/merchant account directly with AX, or through their client bank.
"You are correct.  Credit card companies charge the merchant for every transaction.  But the merchant isn't necessarily going to give you discount for paying in cash.  The idea is that by providing more payment options, they increase sales, covering the cost of the transaction fee.  That said, some merchants require a minimum purchase for using a credit card, though this may be against the policies of some issuers in the U.S. (I have no idea about India.) Also correct.  They hope that you'll carry a balance so that they can charge you interest on it.  Some credit cards are setup to charge as many fees as they possibly can.  These are typically those low limit cards that are marketed as ""good"" ways to build up your credit.  Most are basically scams, in the fact that the fees are outrageous. Update regarding minimum purchases: Apparently, Visa is allowing minimum purchase requirements in the U.S. of $10 or less.  However, it seems that MasterCard still does not allow them, for the most part.  Moral of the story: research the credit card issuers' policies.  A further update regarding minimum purchases: In the US, merchants will be allowed to require a minimum purchase of up to $10 for credit card transactions.  (I am guessing that prompted the Visa rule change mentioned above.) More detail can be found here in this answer, along with a link to the text of the bill itself." Think about the credit card business model... they have two revenue generators: interest and fees from borrowers and commissions and fees to merchants. The key to a successful credit card is to both sign up lots of borrowers AND lots of merchants. Credit card fortunes have improved dramatically since the 1990's when formerly off-limits merchants like grocery stores began to accept cards. So when a credit card lets you just pull cash out of any ATM, there are a few costs they need to account for when pricing the cost for such a service: Credit card banks have managed to make cash advances both a profit center and a self-serving perk. Knowing that you can always draw upon your credit line for an emergency when cash is necessary makes you less likely to actually carry cash and more likely to just rely on your credit card. "I thought I'd see if the credit card companies had anything to say about this while trying to get merchants to sign up. I went to visa.com, clicked ""Run Your Business"" in the top nav, then ""Accept Visa Payments"". This page has a ""More benefits of accepting Visa"" link with an overlay (which I can't easily link directly to), which includes these lines: While the average cash transaction is $17, credit card purchases average $70 while debit card purchases average $36.² ² Visa Payment Panel Study (2Q11 to 1Q12 time period); Visa MARS Data: March 2015 – May 2015  That obviously doesn't tell the entire story (I suspect people are more likely to pull out cash when they're just buying a stick of gum, and more more likely to pull out a card when they're buying large electronics), but certainly there is some evidence from the credit card companies themselves that people spend more when using cards, which is one of the aspects they use to convince merchants to accept cards. I think the best evidence that people spend more is that more and more merchants accept cards. Accepting cards comes with some significant costs (though it's important to keep in mind that accepting cash can come with some significant costs as well). I suspect that merchants wouldn't do so unless the increased sales that they get for accepting cards makes up for the fees that they need to pay and the equipment they need to buy to accept them (not to mention the risks of chargebacks and the like)." "When you buy something with your credit card, the store pays a fee to the credit card company, typically a base fee of 15 to 50 cents plus 2 to 3% of the purchase. At least, that's what it was a few years back when I had a tiny business and I wanted to accept credit cards. Big chain stores pay less because they are ""buying in bulk"" and have negotiating power. Just because you aren't paying interest doesn't mean the credit card company isn't making money off of you. In fact if you pay your monthly bill promptly, they're probably making MORE off of you, because they're collecting 2 or 3% for a month or less, instead of the 1 to 2% per month that they can charge in interest. The only situation I know where you can get money from a credit card company for free is when they offer ""convenience checks"" or a balance transfer with no up-front fee. I get such an offer every now and then. I presume the credit card company does that for the same reason that stores give out free samples: they hope that if you try the card, you'll continue using it. To them, it's a marketing cost, no different than the cost of putting an ad on television." Your chief problem seems to be that you're mixing Visa (credit cards) and Step2 (a European Automated Clearing House). Credit cards are primarily an American concept, but do work worldwide especially in travel&tourism industry. The Credit Card companies are financial institutions themselves and operate similar to international banks They're typically acting as intermediaries between the customer's bank and the retailer's bank, so this works even if those two banks have no existing agreements.  This is expensive, though. Step2 is a cheaper European system which eliminates the middle man. It allows the consumer's bank to directly pay the retailer's bank. VISA is not a member of Step2. A few reasons make sense: They have a defined process for rentals, risk assessment, and customer credit. Especially for a large corporation, making changes to that process is not trivial, adds risk/uncertainty, and will be costly. Such changes for a relatively small customer base might not makes sense. Many rental companies DO allow you to rent with a debit card. Why do some businesses take cash only?  With a debit card, there is no third party guarantee. With a credit card, the cash is coming from a well-established third party who will pay (assuming no disputes) and has a well-established history of paying. Even if the merchant holds your account, it is still your cash under the control of you and your bank until the deposit clears the merchants bank. It is not surprising they view that as more risk and potentially not worth hassling with debit. Cash back from credit cards is handled separately than the rest of the purchase, i.e. interest begins accumulating on that day, and likely at a higher rate, and usually comes out of a lower limit than the credit allotted to that card. Given all these differences, and the obvious revenue-generation situation for the lender, it makes sense for them to give the store an incentive, rather than penalize them further, for the use of such a feature.  Note: I am not privy to the inner-workings or agreements between large stores and credit lenders, so I cannot guarantee any of this. Interchange fees. Every time a customer buys something on credit, the seller pays a fee. They're not allowed to itemize that fee and pass it on to the buyer, but they can offer a cash payment discount.  In short, rewards cards are a system of collective bargaining for buyers versus sellers. Some argue it drives prices up for everyone who isn't a cardholder, but I think the evidence is mixed. I am not sure if this is the actual reason or not, but all of the major credit cards (Visa, Mastercard, Amex, Discover) provide damage insurance coverage on car rentals. Debit cards do not usually provide this coverage. So, if you use a credit card, the car company knows it will be able to recover the cost of any damage to the car.  Of course, this doesn't explain some of the odd debit card policies out there. For example, Alamo will not let you use a debit card unless you provide proof of round trip travel (like a plane or cruise ticket). But you can use a credit card without having a travel ticket. I'm not sure how having a travel ticket makes debit card users less of a risk, but apparently it does somehow. There are different ways of credit card purchase authorizations. if some choose less secure method it's their problem. Merchants are charged back if a stolen card is used. Each company that has an account with the credit card network has to classify themselves as a particular type of business.  The credit card company uses that classification to catagorize the transaction on your statement. If you buy a T-shirt at a grocery, amusement park, gas station, or resturant; the transaction will be labeled by the vendor type.  Look at recent credit card statements, even if they are from different cards, to see how the stores you want to know about are classified. I'm surprised by all the pro-credit answers here, debit has some definite advantages. Most importantly, when you pay with a credit card, the merchant pays around 3% of the transaction to the credit company. In many states, they are forced to charge you the same amount, and this is frequently toted as ''consumer protection''. But consider what this means for the business: they loose money for every credit transaction, and they're legally forbidden to do anything about it. So you're taking 3% from a business and handing it over to a massive cooperation.  To make matters worse, the buisness is inevitably going to have to raise their prices (albiet by a small amount), so in the end the average consumer has gained nothing. On the other hand, the credit card company wins big, and they use their profits to pay lobbyists and lawyers to keep these rules in place. To put in the worst possible light, it's essentially legal extortion, verging on corruption. As for the fraud protection offered, while it may be true that credit cards will offer a more hassle-free reimbursement (i.e. you just don't have to pay the bill) if your card is stolen, consumer protection laws also extend to debit: in many cases your bank is legally required to cut you a check for all the money you lost. Debit cards do not earn the bank any interest from you whereas credit cards do, so they want to give incentive to use credit over debit. 1) Every credit card company charges vendors a fee. That's sufficient to make an acceptable profit per charge even if some of that money goes into marketing expenses -- and the cash-back offer is a marketing expense. 2) Many if not most consumers pay interest; probably everyone does so occasionally when we get distracted and miss a payment. 3) The offer encourages you to put more payments on the card -- and in particular on their card -- than you might otherwise. See #1; that increases net income. There are numerous reasons that go beyond the immediate requirement for access to credit.  Many people just plain don't like carrying cash. Before electronic debit cards became mainstream about the only way to pay for online services was with a credit card.  This has now changed just about everywhere except a large number of airlines which still only sell online tickets via a credit card payment. And then there are all those countries where governments (and some banks) have decided to charge merchants more when customers use debit cards.  If you don't like carrying cash then you may find that the only card you can use is a credit card. These concerns are gradually disappearing and at some stage someone is likely to offer a combined debit-credit card. At which point you'll probably get credit whether you like it or not.