Credit Card Rewards Became a $9.2B Wealth Transfer

Forgeties79

> Because merchants charge everyone the same price regardless of how they pay, those fee costs are factored into prices for all shoppers. However, credit card users get that money back and then some through rewards, while cash and debit users get little or nothing. >The result: People paying cash face the equivalent of a 26% higher sales tax than premium credit card users shopping at the same store. I am surprised this never occurred to me or has come up at all in discussions with people (in the context of rising costs/inflation specifically). I’ve literally never considered this compounding effect until now. It’s so obvious of course, it just never even crossed my mind.

aurareturn

I always wondered why people in America would ever pay by cash or credit card - unless they are laundering that cash. Otherwise, you're giving up 1-3% discount. Set auto-pay on your credit card to pay in full every month. I've never once paid for credit card interest. I think there's a term inside credit card companies for people like me: leeches or something like that.

SXX

Important context: this is US thing. EU capped interchange fees at 0.2% for debit and 0.3% for credit cards. So in US card processing is x5-x10 more expensive.

puelocesar

And those same American companies want the US government to intervene in other countries to try to kill their local alternatives

gustavus

So i may be an anomaly but I'd say 20-40% of all places I shop have a specific fee to cover CC transactions using a CC vs Cash.

roland35

Patrick McKenzie (patio11 fame) had a great blog post in credit card rewards There is a lot that goes into it, and it is interesting how customers like me who literally never have carried interest and have to made thousands of $ in rewards over the years still make the banks money.... https://www.bitsaboutmoney.com/archive/anatomy-of-credit-car...

nsedlet

Credit cards also transfer wealth from people who pay interest to people who don’t. It’s a silly system, where everyone has to invest their time (optimizing for rewards, avoiding interest) in an ultimately negative sum game. I hate it so much.

Tepix

Credit card owners benefit. But they also pay: With their data.

dukeofdoom

So if anyone is trying to picture what 9.2 would buy. The new bridge between US and Canada (Gordie Howe) was 4.6 billion. So that is 2 giant bridges + related infrastructure ... worth of wealth transfer. That bridge had some corruption / payoffs, so we should discount that by 10% wealth transfer as well.

DrScientist

It's cheaper to be rich, and expensive to be poor.

ngriffiths

Patio11 covered this exact topic: https://www.complexsystemspodcast.com/episodes/credit-card-r... It's clearly more complex than the story these authors are telling, in particular the highest income consumers get the worst returns on their interchange payments. So stores and services catering to wealthy consumers are actually subsidizing an opportunity for savvy customers, many of whom are not wealthy

59percentmore

How hard is it for the wealthy to not smack everyone else around at every possible opportunity? What happened to noblesse oblige? (This is not a rhetorical question, I would love to hear others' take on the psychology and history of the subject. Really, how hard is it?)

oldsklgdfth

Merchants pay the transaction cost. In my parents business in the early 2000s customers would ask in advance if they could use a CC. Some places installed ATMs in the corner (still a thing in some places), but quite unpopular. Rather than lose a customer the merchant will accept payment with credit card and pay the fee. One consequence of this system is the large merchants have more bargaining power and can negotiate lower fees. So large retailers, gas station chains, etc. are able to reduce the overhead of accepting CC payment. While smaller merchants have the same higher cost. From a capitalism perspective, this is the most egregious example of "you have capital, so you can make more capital". Banks holding the capital in this case. Fun fact: when credit cards were first introduced only to people with good credit, which paid the balance in full. this was not profitable. Only after opening the pool to other credit levels did CC start printing money for banks.

Mamut3

Credit card systems are a Ponzi scheme that favors those who already hold a lot of capital, at the expense of those who weren't lucky enough to be born heirs. This is even more true of the American brands that are getting Trump to attack modern, open, cost-free systems from other countries—like Brazil's PIX, maintained by the Central Bank of Brazil. I call it 21st-century American usury.

janpeuker

As others have mentioned this is particularly prevalent in the US. I always liked that Australia's vision for a peer-to-peer payment system (note cards are mainly for merchants, hence the rewards) has inclusivity [1] as one of its core tenets "continue to transact ... without disproportionate burden or risk ... those experiencing financial hardship". They also just stopped surcharging [2] and have capped interchange fees since a long time. 1) https://a2apaymentsaustralia.com.au/wp-content/uploads/2026/... 2) https://www.rba.gov.au/payments-and-infrastructure/review-of...

ilamont

Because merchants charge everyone the same price regardless of how they pay Not at many gas stations. Cash gets a discount usually $.10 per gallon. I’ve also started to see restaurants either give a discount for cash, or charge extra for credit card purchases. Business suppliers from tiny shops to large national companies tack on 3% for people paying with credit cards, or like T-Mobile, a $5/line monthly fee in order to get people to pay by direct debit.

myrmidon

I think this is disingenuous framing. Credit card rewards are not a mechanism to shift wealth towards premium card holders (this is a negligible distraction), they exist purely to increase revenue/conversion rate, by decreasing customer price sensitivity (compared to cash payments) and encouraging financially irresponsible spending. If this did not actually work in practice, every merchant would just insist on cash and pocket the difference. "Poor people" are hurt much more from the changes in spending behavior induced by credit card use than by paying for card rewards.

nyeah

I interpret this article, and all related discussion, as an invitation to talk about my personal finance habits.

diego_moita

Credit card fees is one of the main reasons why Brazil's Pix and India's UPI are destroying their market share in those countries. For merchants, it just doesn't make sense to pay high fees to cater to a dwindling minority of consumers.

amazingamazing

What a silly article. Don’t buy things you cannot afford. Wealth transfer is a ridiculous framing. Is any heterogeneous situation involving money a wealth transfer?