The Federal Reserve Board conducted a study and published its findings on who pays for credit card rewards. The study shows that consumers with higher credit scores benefit the most from rewards because they spend more money and earn more rewards. Card holders with lower credit scores overspend to try to earn more points and incur higher interest payments stemming from outstanding balances. This means that banks profit from reward cards across all credit scores, but they benefit most from prime card holders. With low credit score customers, banks mostly generate revenue from interest payments. Credit card rewards are often framed as the reverse robin hood, where the poor subsidize the rich, but this shows that this concept is at best incomplete.
When you factor in that Merchants also pay a percentage in processing fees for every transaction, you start get the real picture of who is paying for credit card rewards. Everyone is paying for these rewards except the credit card companies and issuing banks that use this marketing tactic to lure in customers.
We believe Merchants shouldn’t have to pay for their customers’ reward points. Our flagship product, FEEPASS can help merchant eliminate credit card processing fees and save more of what they make. Contact us today to learn more.