Credit Card Rewards: A $9.2B Wealth Transfer from the Poor to the Rich
Credit Card Rewards Became a $9.2B Wealth Transfer
Harvard Business School research reveals that credit card rewards constitute a massive wealth transfer: $9.2 billion annually from lower-income households to those earning over $150,000. Professor Mark L. Egan and colleagues analyzed data from Fiserv covering 1.8 million merchants, finding that interchange fees effectively impose a 26% higher sales tax on cash payers compared to premium card users. The study also shows the Durbin Amendment backfired, hurting middle-income debit users most, and offers insights for merchants navigating the fee landscape.
It's just the way the market was set up; it turns out to be unfavorable to people who use cash and debit, and those who happen to be people with low incomes.
- CircuitSeuss
This ignores the aspect of consumer data.
Credit issuers generate profit through issuing rewards programs in part due to the sale of their customer’s behavioral spending data. Cash and debit users largely retain their data privacy here.
It’s hard to put a real world number on what the cost to the consumer is for losing this data ownership, but it is not zero: these data are increasingly used for targeted pricing practices which extort additional margins from the consumer at a later date.
- 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.
- m101
The only way to solve this is to have the user of the credit/debit card pay the fee. Sure, you can do an EU thing of 0.2-0.3% or whatever it is, but this might still be 0.2-0.3% more than it could be in a competitive market.
- 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...
- puelocesar
And those same American companies want the US government to intervene in other countries to try to kill their local alternatives
- w10-1
The study methods are closer to advocacy than science or policy.
Sure, take any slice of a vast number, and you get a big number.
It's not a "wealth transfer" when everyone gets what they bargained for and can opt in or out.
Most importantly, the transaction value of using credit cards or rewards systems - what the user actually gets - is not enumerated.
Beyond what others have noted (mainly deferred payment), credit cards offer legal transaction protections: my legal liability for fraud is limited (unlike debit or Zelle transfers), and I can challenge any transaction even later, which gives the vendor an incentive to ensure I'm happy even after they have my money. While reputation provides some incentive for repeat customers, the ability to retract a transaction governs even non-repeats. I would submit this alone has improves quality of service for everyone anywhere credit cards are accepted.
Rewards vary by type. Cash-back rewards reflect the fact that interchange fees were set to recapture initial investments, but servicing costs have plummeting (thanks to computing); governance-wise, it's almost impossible for a "representative" political system to extract a large cost from a small number of powerful agents with vested interests to provide a tiny amount of benefit to a very large numbers of other people. But that's a much more extensive governance issue.
So where does the benefit go? To competition between credit providers, initially as cash-back, and then to tying […]
- 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...
- hnburnsy
From the study...
>When merchants raise prices for all consumers in response to these costs, users of low-cost payment methods (e.g., cash and debit) cross-subsidize high-reward credit card users who shop at the same merchant"
Cash handling is not a low-cost payment method, Cash handling can cost businesses between 4% and 15% of each transaction, when factoring in labor, security, bank fees, and risks like theft and counterfeit bills.
One could argue that credit card users have been lowering prices for cash payers as business avoid cash handling pitfalls and get their funds safer and faster.
- 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.
- wookmaster
Im really surprised the number of comments here who think the rewards are free money they're getting. The stores are paying 3-5% transaction fees for you to use credit cards then they give you 2-3% back and force you to spend it on things they deem can be redeemed. You're paying for that 2-3% back in higher prices for everything. The whole thing is a giant scam and should be shut down.