Credit Card Rewards Became a $9.2B Wealth Transfer

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• Hacker News
• 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.
  by wookmaster
• 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...

  by janpeuker
• And those same American companies want the US government to intervene in other countries to try to kill their local alternatives
  by puelocesar
• 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 rebates to future purchases within controlled channels. For airline point systems that give free flights or upgrades, it improves retention, but other forms of rewards would seem to verge on tying, where power in one market is extended into another.

  Politically-mediated wealth transfers are a political issue. Economically-mediated wealth transfers should raise market-regulation policy issues, in particular whether the law is inducing or protecting them, and then whether they are good or bad. Tallying that requires not just seeing the money flow, but seeing all the value received or cost exported.

  by w10-1
• 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.

  by CircuitSeuss
• Credit cards and cash have their place but the story being told doesn't track with experience.

  First, businesses are increasingly differentiating pricing between cash and credit card - this is most obvious in gas stations where the price you see on the big sign is the cash price and not what you practically end up paying. Or the various restaurants and other businesses that offer cash discounts. While this is relatively new, the earlier manifestation of this is the credit card fee - eg try paying your tuition or utilities using a CC and you'll immediately find this option costs more.

  Interestingly all the above usually hover around 3% so it's tellingly the rate the merchants themselves perceived CC use and infrastructure cost them.

  Second, credit cards are clearly good for business volume. Most people have had the experience of wanting to buy something unplanned and not having the cash on them, but buying it anyway via credit card. On a larger scale, hard to imagine on-line shopping without a credit card.

  Third, I don't find cash-only businesses cheaper. In my town there's a cash-only barber, pizza place, and ice cream shop and they cost just as much as the credit card taking ones. In every case the dynamic is there are long running businesses with sufficient clientele that they never bothered, but they don't use absence off CC fees/infrastructure to generate a consumer savings.

  Fourth, poor people can play the point game too. As a broke college student I was very fond of my Exxon Mobil card that gave me cheaper gas. Now I don't really care about an extra ten cents on a gallon as much.

  by xyzelement
• 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...

  by roland35
• 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.

  by SXX