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![]() ![]() “The American payment system has evolved into a reverse Robin Hood whereby middle-class and working-class Americans who pay with a debit card, prepaid card, or cash are subsidizing the wealthy who pay less for everything”Ībout seven in 10 Americans have at least one credit card, and many people have multiple credit cards. In 2018, American Express spent about $10 billion on rewards. Part of the money that banks get from interchange fees goes back to their customers in the form of rewards. ![]() “Merchants hate paying interchange fees, but if you don’t accept credit cards, you’re turning off a huge part of your audience.” He estimates swipe fees currently average about 2.3 percent, and the more elaborate the rewards card, the higher the fees. “The interchange is a steady, almost annuity kind of revenue stream,” said Ted Rossman, senior industry analyst at Bankrate and. These swipe fees can be big moneymakers for some companies: American Express clocked $24 billion in them in 2018 alone. Generally, issuers charge about 1 to 3 percent of the total transaction amount. When you pay with a rewards card at the bodega, the guy paying in cash behind you is picking up the tabĬredit card issuers - think American Express, Chase, and Citi - make money in three main ways: fees, like annual ones to have the card or penalties on late payments interest on unpaid credit card bills and interchange fees, meaning the amount they charge every time you swipe plus a small fixed fee. Sign up to receive our newsletter each Friday. Vox’s German Lopez is here to guide you through the Biden administration’s burst of policymaking. The catch on credit card rewards and points is that for the richest consumers, there might not be one. “The American payment system has evolved into a reverse Robin Hood whereby middle-class and working-class Americans who pay with a debit card, prepaid card, or cash are subsidizing the wealthy, who pay less for everything,” said Aaron Klein, a senior fellow in economic studies at the Brookings Institution who has studied and written about this issue extensively. ![]() And the higher the rewards, the bigger the cost to the unsuspecting people paying for it. To compensate, businesses raise prices, and so cash users (who tend to be poorer) are often subsidizing the perks going to credit card users (who tend to be richer). It seems trivial, but those fees add up - enough to help pay for rewards like points-funded hotel rooms and cash back. But they likely imagine it’s the bank, not their fellow consumers and businesses, picking up the tab.Įvery time a credit card is swiped, the bank charges a fee. Many people who use rewards cards have some idea that those rewards are coming from somewhere. But other times, they can fly under the radar. Sometimes, they’re obvious: who can and can’t get approved for a loan, who has a bank account and who doesn’t. The US financial system is racked with inequities. The $200 in cash back you got using your fancy new rewards card often comes at the expense of someone who can’t afford it. What people might not realize is that the system is already gamed, just not in the way they think: Credit card perks reward rich Americans to the detriment of the poor. There is an entire ecosystem dedicated to gaming the credit card rewards system - the Points Guy, who has made himself a household name, and a web of websites and influencers who teach all sorts of tricks and hacks.
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