How credit card rewards became a $9.2B wealth transfer • Hacker News Board

Re: How credit card rewards became a $9.2B wealth transfer

#231

Post by myrmidon » Tue, Aug 25, 2026, 1:32 PM UTC

diego_moita wrote: post #146

myrmidon wrote: post #111

I think this is disingenuous framing. Credit card rewards are not a mechanism to shift wealth towards premium card holders (this is a negligible distraction), they exist purely to increase revenue/conversion rate, by decreasing customer price sensitivity (compared to cash payments) and encouraging financially irresponsible spending. If this did not actually work in practice, every merchant would just insist on cash a…

You are an economist, aren't you? I suspect that because I didn't understand what you wrote. You used a lot of passive voice and complex jargon. That is economists favorite writing style: they write to confuse, not to explain.

> You are an economist, aren't you?

No. I do embedded software engineering for a living.

I use (in my view) HN appropriate levels of jargon (because lots of people here are involved with getting people to pay for some newfangled cloud thing or other, so I use their terminology).

In simple words: People pay more for the same (and spend more recklessly) when you let them pay by credit card, and this causes much more economical "damage" to poor peolpe than any "wealth transfer from card rewards".

Re: How credit card rewards became a $9.2B wealth transfer

#232

Post by losvedir » Tue, Aug 25, 2026, 1:32 PM UTC

delish wrote: post #115

nsedlet wrote: post #31

Credit cards also transfer wealth from people who pay interest to people who don’t. It’s a silly system, where everyone has to invest their time (optimizing for rewards, avoiding interest) in an ultimately negative sum game. I hate it so much.

Patrick McKenzie rebuts this here: (podcast) https://open.spotify.com/episode/2E2KRPcDvh1LcRw5bIsBms or here (article): https://www.bitsaboutmoney.com/archive/anatomy-of-credit-car... The intuition being: people who carry balances and pay interest don't actually spend very much; they are not wealthy.

I think that's out of date. He links to a study showing interchange revenue net of rewards showing up to 3% by high FICO scores. (Just at a gut check that seems crazy to me, since interchange revenue doesn't really go much above 3%!). But that's from 2013. I remember when Fidelity launched its 2% flat cashback AmEx back in 2003. People didn't really know if it would be sustainable. Now 2% is a dime a dozen.

The most recent I've seen otherwise is this Federal Reserve study[0] from 2022. It finds that the marginal return on swipes is actually slightly negative because of how juicy rewards have gotten, and 80% of their profitability comes from interest (with most of the rest fees):

> we find that, on average, the credit function makes up approximately 80 percent of the credit card profitability, whereas the contribution of the transaction function is slightly negative, as rewards and other expenses on credit card transactions outpace banks' interchange revenues.5 In addition, fees—in particular late fees—comprise approximately 15 percent of credit card profitability.

[0] https://www.federalreserve.gov/econres/notes/feds-notes/cred...

Re: How credit card rewards became a $9.2B wealth transfer

#233

Post by stefanfisk » Tue, Aug 25, 2026, 1:32 PM UTC

api wrote: post #93

59percentmore wrote: post #87

Earlier quoted context omitted.

Things that are more expensive in the US for no reason: Healthcare Internet access College sighs and adds "The very act of making a purchase" At least we have cheap gas? farts

Internet access sort of has a reason: the US is geographically huge and more sprawled out. But that's not enough to explain all of the difference.

That’s not the reason. The required build out has actually already been been paid for: https://www.huffpost.com/entry/the-book-of-broken-promis_b_5.... But the US is so politically broken that corporations could just pocket the money without actually providing the infrastructure.

That does even begin to touch on crazy laws banning people from setting up their own ISP to compete: https://www.techdirt.com/2024/11/07/16-u-s-states-still-ban-....

Re: How credit card rewards became a $9.2B wealth transfer

#234

Post by greyw » Tue, Aug 25, 2026, 1:33 PM UTC

matheusmoreira wrote: post #136

bluGill wrote: post #118

Earlier quoted context omitted.

You shouldn't get a cash discount - cash costs the merchant MORE than credit card fees. You have to count all the costs of cash that credit cards don't have: counting, and recounting the cash and change. Then the manager counts and recounts everything in the back room at the end of the shift. Then the manager counts everything twice again to write up the deposit forms. Plus you need a cash register with the extra cas…

> You shouldn't get a cash discount Maybe, but "should" has nothing to do with it. Either I get one or I use my credit card. > cash costs the merchant MORE than credit card fees That's not my problem.

Just pay with a credit card, it's the optimal way by far (float, flexibility, rewards). No need to overthink it.

Re: How credit card rewards became a $9.2B wealth transfer

#235

Post by KellyCriterion » Tue, Aug 25, 2026, 1:34 PM UTC

whaleofatw2022 wrote: post #202

Lucasoato wrote: post #137

Earlier quoted context omitted.

I’ll never understand this credit card debt thing... and why should businesses eat the credit card commission cost? Is it 5%? You pay for it, why should I?

5% is a pretty high rate IMO. When I worked at retail 20 years ago we got around 2 or 3%, and that was a mom and pop shop, not big retail...

AMEX acceptance is super expensive, IIRC they are around on that level

Re: How credit card rewards became a $9.2B wealth transfer

#236

Post by Xirdus » Tue, Aug 25, 2026, 1:34 PM UTC

esseph wrote: post #71

Xirdus wrote: post #13

Earlier quoted context omitted.

A lot of it is to enable the small business owners to hide their real income. At least that's how it works in immigrant communities.

Huh?

Based on the downvote and your reaction, I assume I misread something. We're talking about why Americans sometimes prefer paying with cash over credit card, no?

Re: How credit card rewards became a $9.2B wealth transfer

#237

Post by tialaramex » Tue, Aug 25, 2026, 1:34 PM UTC

gruez wrote: post #107

tialaramex wrote: post #95

Earlier quoted context omitted.

Even if the FX is notionally "free" they pick the rates. So they can set those rates to generate exactly the same profit for them as with fees. You will probably not see rates that are even competitive with a dodgy FX cash place at an airport, let alone with the numbers you've seen on financial networks for what FX transactions by banks cost, but you feel happy because there was "no fee".

>they pick the rates. So they can set those rates to generate exactly the same profit for them as with fees. No, the rate is set by the card network, eg https://usa.visa.com/support/consumer/travel-support/exchang...

Huh. I wonder how long that's been true. I guess I haven't been to America since last century, but I could have sworn I had zero fee but unreasonable FX rates when I was in Poland which can't have been more than 25 years ago.

Re: How credit card rewards became a $9.2B wealth transfer

#238

Post by gumby » Tue, Aug 25, 2026, 1:35 PM UTC

ramijames wrote: post #121

nsedlet wrote: post #31

Credit cards also transfer wealth from people who pay interest to people who don’t. It’s a silly system, where everyone has to invest their time (optimizing for rewards, avoiding interest) in an ultimately negative sum game. I hate it so much.

I'm 46. I've never had a credit card. I have a bank account and a debit card. If I can't afford something, I don't buy it. You can just opt out of using credit cards.

In the US you have several legal safeguards that are not provided by debit cards. Fraud liability limitations, chargebacks, and so on.

You can still implement “if I can’t afford something, I don’t buy it” with a cc. I pay mine off every month so it’s financially the same s a debit card but use a premium card for its purchase benefits.

Re: How credit card rewards became a $9.2B wealth transfer

#239

Post by ngriffiths » Tue, Aug 25, 2026, 1:36 PM UTC

gruez wrote: post #147

ngriffiths wrote: post #61

Patio11 covered this exact topic: https://www.complexsystemspodcast.com/episodes/credit-card-r... It's clearly more complex than the story these authors are telling, in particular the highest income consumers get the worst returns on their interchange payments. So stores and services catering to wealthy consumers are actually subsidizing an opportunity for savvy customers, many of whom are not wealthy

>in particular the highest income consumers get the worst returns on their interchange payments That's not what the article says: >High-income consumers with high FICO scores benefit the most from reward credit cards compared to mid- and low-income consumers with high FICO scores. At the lower end of the FICO distribution, however, this pattern is reversed. On average, net rewards are far more negative for high-incom…

To be clear though, the higher FICO scores get hosed the most, see the graph earlier on. Your quotes are conditional on FICO so they don't take that into account.

The only way I can put these things together is that at the high FICO end, both wealthier and poorer consumers get hosed a lot but wealthier consumers not quite as much. On the other hand, lower FICO band doesn't get as bad of a deal overall but it is worse for wealther people (plausibly because they have high interchange fees and don't use their rewards).

It's complicated, but... this is not a wealth transfer right? It is a transfer mostly just from consumers to credit card companies that provide them a service.

Re: How credit card rewards became a $9.2B wealth transfer

#240

Post by Xirdus » Tue, Aug 25, 2026, 1:37 PM UTC

bitmasher9 wrote: post #60

Xirdus wrote: post #22

Earlier quoted context omitted.

My first US credit card was a 4-3-2-1% rewards program and I had literally zero income at the time. I was told by the banker, "oh you can't do that right away, you must first get a secured card to build your credit score, after a year you can try applying for real", but I told them I don't care and to send the application anyway, and I've got it. Ever since then, I wondered how much of the "not qualifying" is due to…

Most true not qualifying are either 1. People with proven bad credit. 2. People asking for a lot of money without proven good credit. 3. People asking for more specialized credit, such as lines for businesses or lines for high earners.

The question is what percentage of overall population are 1, 2 and 3 combined, and is it big enough to warrant the perception that high reward cards are only for high earners/spenders.

My instinct says hell no, not even close.