Nope, they're still collecting interchange fees [1] from everyone you do business with. They're probably taking the same amount as your rewards, if not more.
Essentially, the participation and dominance of credit card transactions in our (U.S., at least) economy maintains a some-percent elevation in consumer prices. That "toll" going in large part straight into payment processors' and banks' pockets.
If you do pay by another means, perhaps the seller gets a bit more on that particular transaction. But I've talked with many small business owners who greatly lament these transaction fees. Not insignificantly, because they've been unable to compete with the negotiating power of big business, the latter as a result getting lower fees and a resulting competitive advantage.
As for "deadbeat", I've heard that term before, used for precisely the circumstance described.
Are they "losing money"? I doubt it. But along with oligopoly comes an oversized dose of greed. And some portion of management looking to sell their own performance by upping the return/profit rate on extant accounts. Or something like that, no doubt.
No, the credit cards are making plenty of money off of you: probably on the order of $150 a month. From there it costs $.35 to bulk mail your bill, and $.25 to process your payment (including the cost of running the web site you pay it at). There is also your share of the advertising they do, and other overhead that I don't know how to place. Still their profit off of you is over $100/month!
I'm not entirely convinced that the person who maxes out their cards and pays interest is actually more profitable - a lot of them will end up defaulting in a few years and paying less than they actually put on the cards in interest. I can't be bothered to look up the numbers (if they are even available) to see if that is true or not.
Of course I made up the numbers above. They are ballpark (and somewhat variable), but they give you a picture of the truth: your are insanely profitable to them.
However, the specific name for the cohort of users who paid a very small percentage of their spend (including 0%) was indeed "deadbeat" (at least in the two data warehouses I helped build out), as I'm less profitable than others with less spend.
In fact, one issuer (Capital One) actually closed a card I regularly used (~$1000/year annual spend) about 2 years ago, the letter not stating reasons why. I actually called customer service, and they cited that the costs to maintain my account was considered too high. I used them for a specific category of transactions in which the rewards were higher than any other card I had. Though my usage was apparently insufficient to make it worthwhile keeping me as a customer.
As others have stated making money off of the merchants is part of their business model. At $1k/year I wouldn't be surprised if that puts you into negative territory.
The idea of using a credit card to spend money that I don't already have sitting in the bank is appalling to me. If I need more money than I have, I borrow it from somewhere else. I would rather sit down at the bank and ask for a small loan from them than use a credit card with an obscene interest rate.
A small nitpick would be that there is a drawback: the cash value of the reward points is less than the additional cost of doing business for the merchants you pay via credit cards. Granted, if everyone else is using credit cards while you use cash, you get hit with that drawback without the benefit of recouping a portion of that value by way of points.
If a merchant gave me a solid 4% discount for handing over a wad of cash, I'd put away the credit card.
They don't and can't give you a solid 4% discount for cash payments (or a credit card surcharge) because it is generally against the terms of their merchant agreement and they would be at risk of losing their ability to process credit card transactions altogether.
My original comment was merely reflecting on the fact that the perceived upside of getting rewards is dampened by increased costs that are passed all the way back through to the consumer anyway.
It wouldn't hurt, IMHO, to just ask a vendor if they can give you a discount for cash.
Some groceries near me (given the large Asian/Indian population) simply don't accept CCs. Some accept debit cards, and give you an incentive for cash.
Instead, you are a "transactor", vs. a "revolver", one who takes on the debt for more than the grace period.
Credit cards are valuable tools since they:
1. Offer all sorts of insurance/protection. 2. Lump multiple small transactions into one monthly debit from your checking account. 3. Offer a 30 to 55 day interest free float.
The issue is that some people have no self control. Once you start missing full balance payments all benefits are pretty much negated.
"I don't use CCs because I have no self-control"
It's also easily solvable by getting a credit card with a low transaction limit (say, $1000), but people who have no self-control generally aren't interested in solutions.
My regular bank changed the fee structure on me, somehow I missed the notice about it, and I got dinged with some account fees. So I switched ALL of my day-to-day spending to a credit card with a competing bank.
So instead of 40-ish Interac transactions per month for my day-to-day stuff, they get one bill payment transaction.
My interest payments are zero, since the bill gets paid off, plus I get the cashback bonus right around Christmas time.
It's ridiculous, but I get more utility out of the credit cards, even with the fees, than debit cards.
Straight cash back bonuses are maybe not as easy to find.
There are entire websites and communities dedicated to the points game.
I certainly use my credit cards. In fact, I use them for everything I can, to maximize my rewards (which equates to ~$75 in cash back every month). The only things I can't use them for is rent and health insurance. Everything else gets churned through, and the balance is paid off at the end of every statement. It's quicker, has better fraud protection, and is easier to ensure I'm staying on budget. I just haven't paid a cent in interest in at least a decade.
I believe the term the credit card companies have for me is a "deadbeat".