The New York Times has a guest piece discussing how “poor consumers are ultimately footing the bill” of the recent boom in credit-card-points rewards. It posits those not participating in these rewards programs (mostly the poor) are paying for them nonetheless — through increased merchant fees transferred to all customers at the point of purchase, as annual fees on the cards are not offsetting the points-earning and lenders diversify their recoupment strategies.
Chenzi Xu and Jeffrey Repucci of Stanford University write:
In 2022, the Federal Reserve published data showing that the cost of rewards, as a share of total transaction volume on credit cards, increased 25 percent from 2015 through 2021. This bonanza has helped affluent professionals flood Instagram with envy-inducing shots of white sand beaches, hotel suites and plush airport lounges.
But these high-income travelers are also less likely to carry balances that incur interest charges and late fees, which traditionally increase profits for card issuers. So, to offset the cost of paying lavish rewards to these consumers, banks have sought to maximize other usage-based revenues.Enter interchange fees, or the money it costs merchants to accept noncash payments. A recent study at Stanford found that when credit card rewards increase, so do these fees.The United States now has some of the highest credit card processing costs in the world, typically at 2 percent to 2.25 percent of every purchase. This is eight to nine times as much as the prevailing swipe fee in the European Union. The vast majority of merchants pass these costs on to consumers by charging more for their products — regardless of how one pays.
In other words, American store frequenters are all paying an additional “tax” on purchases; it’s just that some of us are granted a rebate on the increased prices through our credit-card points. To be honest, I thought the arrangement was kind of obvious (thanks, Dave Ramsey), but speaking to others, they had no idea this was the arrangement. With the ubiquity of credit cards now, it’s difficult to find places that still operate cash-only or overtly add a surcharge line item for card usage. So customers are going about their lives, not knowing that they’re paying more than they’d have to for goods, compared to using the somber visages of Lincoln and Hamilton — actually, what doesn’t cost a Benjamin Franklin now? Larger stores could separate “cash” and “card” purchases as some gas stations do, but I imagine it’d be a headache for them and that they receive pressure from card companies to keep the final price the same.
Yesterday, Christian Schneider had an ode to the dollar:
There is nothing more American than the dollar bill and the independence it offers. No matter where you are in the country, it speaks the regional dialect. It fits neatly in your pocket, it can survive a run through the wash, and it intimidates people. Would anyone actually feel threatened if Clint Eastwood chomped on a cigar and declared he was in search of “a fistful of PayPal”?
And “Ahha” had a worthwhile comment on Schneider’s post:
Another good thing about cash the author did not mention is that a cash transaction is complete on the spot, from both an accounting and mental standpoint. The business charges you, you put down your money, it is acknowledged by the business and everyone moves on with their lives in a way that only anonymity can provide. If it’s the kind of business with tipped employees, the cash you leave as a tip is often taken note of immediately by the server. As opposed to after the customer is gone, when the server inputs the credit card tips on their checks, and only then sees how generous or not the customer was. I enjoy the little wave I get from the server as I am leaving, after they have seen the cash I left.
What the solution to this issue is — and I do think it’s a problem to foist rewards program costs onto those unable to enjoy them — I cannot say for sure. All I know is that it’s a bad thing for society to see vacation pictures of the wealthy as a poor bloke and know that one’s grocery bill is higher because “my” family has been involuntarily subsidizing jetsetting.