Credit Card Rewards Became a $9.2B Wealth Transfer
Research from Harvard Business School suggests that credit card rewards programs function as a massive wealth transfer from low-income, cash-paying consumers to wealthy credit card users. Merchants pass interchange fees onto all customers, effectively subsidizing rewards for those who can afford premium cards.
Why it matters
It challenges the fairness of modern payment systems and highlights how financial structures can exacerbate economic inequality.
American Express has famously touted that “membership has its privileges.” For wealthy consumers today, those benefits total $9.2 billion each year, subsidized by middle- and lower-income households. As inflation-weary businesses raise prices to cover credit card interchange fees, the pain isn't universal, says research by Harvard Business School Professor Mark L. Egan. 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.
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