The study found that the rich get richer and the poor take a hit when it comes to credit card rewards. Despite this, there is not much incentive for retailers to change their pricing or promotions, making it difficult for consumers to find better deals on everyday products.

A new paper has shown that credit card rewards are not benefitting the rich at expense of the poor. The “truth about credit card rewards” is a problem that has been present for a while.



A new study finds that credit card rewards do not benefit the wealthy at the expense of the poor.

on November 11, 2021 by Gary Leff

Merchants sometimes pay more to accept rewards credit cards than plain vanilla credit cards without incentives. Merchants want to take credit cards since it benefits their company, but they’d want to pay less for it. Many shops resort to governments or the courts to attempt to get Visa, Mastercard, and American Express to cut their costs.

One of the reasons used by merchants to mask self-interested conduct (for example, pitching self-interested behavior to federal politicians in The Hill) is ‘concern for the poor,’ saying that the affluent profit from incentives while the poor pay higher costs as a consequence. As I’ve shown multiple times, this is clearly incorrect. It isn’t the way credit cards operate.

  1. Prices have not decreased when interchange limits have been enforced. People are prepared to pay current pricing at the present volume of transactions (supply and demand). Retailers would save money by capping interchange, but there’s no guarantee that those savings will be passed on to customers. When interchange limitations were implemented in Europe and Australia, as well as the Durbin amendment limiting debit interchange in the United States, prices did not decline.
  2. Accepting credit cards is less expensive than accepting cash. Taking cash might cost anywhere from 5% to 15% more than accepting credit cards, depending on the company. Employees pocket cash, they make erroneous change, having big quantities of cash increases up insurance costs, and it encourages outside thievery, among other things.
  3. Those who pay with a credit card spend more money. Even though accepting credit cards costs more, it’s well worth it since consumers who pay with credit cards spend more because they aren’t limited by the cash in their pocket and may be less concerned about little amounts of money. It’s one of the most cost-effective and efficient marketing investments a company can do.
  4. Credit card perks do not drive up pricing. If you’re worried about price changes, you should be concerned about inflation rather than government expenditure and monetary growth. And, of course, think about how you might improve financial system accessibility. Encourage, rather than stifle, further innovation with financial instruments that make electronic payments more accessible to everybody.

Three experts have written a new study that presents numerous more compelling points on this topic.

  • The assumption that the ‘rich’ and ‘poor’ are purchasing the same products at the same shop (which is required for the assertion that higher costs are due to greater rewards card interchange) is not based on real store and customer experience.

    Depending on their income, various groups of customers shop in different areas and purchase different goods. Merchants may modify pricing depending on the frequency of card use in this more realistic situation, reducing the redistributive impact. To put it another way, rewards-card holders are mostly responsible for their own perks.

  • Furthermore, they do not transfer all interchange costs onto customers; “research implies a pass-through range of 22-74 percent, with a median of 50 percent in the long term,” according to the study. Reducing card interchange does not translate into lower costs. In fact, we know this from experience because when the Durbin amendment limited debit card interchange, prices did not decrease.
  • The wealthy vs. poor tale doesn’t hold up when it comes to rewards cards, since lower-income customers use them regularly! “Data reveals that incentives perks are connected more to credit score than wealth or income,” according to the report. At a salary of $23,000, I received my first rewards card. I routinely counseled 22-year-olds on the best rewards cards for their beginning wages.
  • Capped interchange, according to international experience, entails increased yearly fees on benefit-rich cards, placing greater perks farther out of reach of ‘the poor.’

If you really care about the poor in the financial system, you’d concentrate on the factors that drive them into shadow banking institutions and prevent them from opening standard bank accounts. For example, the Durbin Amendment to Dodd Frank financial reform cut interchange charges on debit cards and made it unprofitable for banks to provide checking accounts to the poor. Because banks could no longer profit from offering debit cards to their checking clients, fee-free checking choices plummeted. As a result, customers are compelled to seek out alternatives with greater costs, such as check cashing shops.

More From the Wing’s Perspective


The “are credit cards worth it reddit” is a new paper that shows that the benefits of credit card rewards aren’t benefitting rich at expense of poor.

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