As a business owner, you rely on a quality business banking relationship to help you be successful as banking is an integral part of paying yourself, your employees, and your vendors. And while having a quality business banking relationship is important, it’s equally important to understand how banks leverage your business economically for their own financial success.

Many business owners I’ve met have explained that they get an amazing deal on their merchant services from their bank because they give them 100% of their business. Some have even explained high signing bonuses to move their merchant services.

As a merchant service provider, even I started to wonder where all this money was coming from so I decided to do a little research.

According to the FDIC, Bank of America had a net income of 6,668,000,000 in their first quarter of 2018! Yes, that is over 6 billion with a capital B! That is their profit after all their expenses! Bank of America, according to Statista, earned in excess of 18,000,000,000 in 2017. That was eye-opening, so I chose to dig a little deeper to evaluate a few areas banks leverage business owners to create wealth.

Here are 4 of the top ways banks leverage your business to create wealth:

DEPOSITS

One of the most powerful ways banks create wealth is by accepting your deposits for virtually nothing in return and funding loans against your deposits. They convince you of the value they bring when you give them your money for free and they earn 5-10% interest by lending it to a business owner needing equipment financing or an SBA Loan.

INTERCHANGE REIMBURSEMENTS

If you accept credit & debit cards in your business, you may not know that it’s not only Visa making millions of dollars off the backs of business owners. It’s the banks that issue the debit & credit cards with all the frequent flyer miles that earn 80% of the merchant fees you pay every month. The banks attract new members to their bank by offering high rewards cards and then make you pay for them. Visa, MasterCard, and Discover only get a smaller piece of the action as we discuss here.

CREDIT CARD INTEREST

Banks issue credit cards, and purchasing cards for business banking clients to pay vendors with, allowing banks to earn income from the interest earned from the balance on the credit card and any other expenses related to their programs. This becomes another profit center for banks to profit from their business banking clients.

CREDIT CARD PROCESSING

Finally, banks offer credit card processing to earn additional revenue from their business banking clients. With over 90% of the banks not having ownership of a credit card processing company, they turn to one of the dozen credit card processing platforms in the U.S. under a referral program or a white-label program. The greatest misconception about the credit card processing offered to business banking clients is that they get some form of a discount by “processing” with the bank. This is inaccurate since the banks’ primary objective is to make money and they are often in the same position as some business banking clients, switching processors to find a better deal. You can learn more about the bank merchant services here.

The intent of this article is to open your eyes to how banks operate and the economics behind how they profit, not to shame banks for making money for providing a quality service. It’s important to remember the value you bring to the bank as a successful entrepreneur and how critical you are to their success.

If you are in the process of evaluating your business banking relationship and would like a referral, don’t hesitate to start a conversation! We’d love to help!