Different brands also have different business models. Amex relies very heavily on interchange, Chase is a balanced mix iirc, Citi is more interest, and different companies have everything in-between. This is a deliberate strategy -- issuers split people into transactors, who never carry balances and pay off their CC bills every month, and revolvers, who carry balances and pay interest. It's a core strategic decision to target how much of your customer base you want to be one vs the other.
To a first order, defaults are subsidised by the high interest rate that they pay. Transactors primarily earn the banks interchange revenue, which is a more stable part of the business, and revolvers primary earn the banks interest, which obviously carries with it much greater credit risk. To a second order, some issuers securitise their portfolios into different tranches, and the default risk is thus pushed to the debt purchasers. It gets much more complicated from there, with different scoring models to determine spending patterns, default risk, bust-out risk, etc. (As an aside, there's a fascinating story around Synchrony switching from FICO to VantageScore a while back, thus making it much more complicated to securitise their CC portfolio)
But, in general, credit card interchange is a cost built into everything you buy, and on which the prime-superprime consumer receives a rebate.
[1] - https://www.thebalancemoney.com/credit-card-surcharges-31542...
TLDR: The existence of credit cards is basically an automatic 2-3% inflation on prices. As a fraction of income, this hurts the poor the worst. The better off get this 2% back as rewards. Cash payers get nothing back.
If you want to draw this conclusion you’d have to calculate the cost of the alternative. What would the impact on prices be if there were no electronic payments? What would the impact on prices be if every bank had to implement its own electronic payment system with every merchant? The credit card system integrates a huge portion of the worlds merchants with nearly all of the worlds banks. It’s massively more efficient than the alternatives, apart from other conceptually similar systems that have exactly the same type of costs. Your claim that removing this efficiency would lower prices seems entirely implausible and to me.
Also note that interchange is capped in the EU at 30bps, and they seem to do just fine without 2% cashback on every purchase. One might start to think that we can do with something similar here in the US.
The TNG cash back program: https://fintechnews.my/33848/e-wallets-malaysia/fave-offers-...
The TNG loyalty program: https://www.touchngo.com.my/promotion/redeem-your-points/
The TNG cardholder fees: https://www.touchngo.com.my/policies/touch-n-go-card-fees-an...
There’s also merchant fees (which are confidential). All of these systems are just reinvented credit cards. They often try to compete with credit cards on merchant fees, but you’re still paying for exactly the same thing. This “alternative” is just the same thing with a different name. You might find a few base points difference in merchant fees here and there (especially during the growth phase of these technologies), but the alternative isn’t to eliminate the premium charged for processing credit cards, it’s simply to allocate it to a different service provider.
Merchants are charged 0.5%. Compared to 2-3% in the US credit card scheme.
The alternative is credit or debit cards with a tenth of the fees and no cashback, just like in every other country.
According to the local gas station, 10 cents cheaper per gallon. Which is about 2%.
You can pay a very similar flat 1/3 of a cent fee for an instant FedNow payment with none of those risks or costs.
0.3c is still far in excess of 0.0025c but maybe that won't matter.
When local vendors give me a cash discount, it’s typically 3%, better than most rewards programs, and I take that.
The few cards that offer 5% in other categories have to be getting that from interest payments or promotional retail agreements as opposed to transaction fees. Hitting one of those on a high spending category is like hitting the lottery!
You know who banks love? That person who has 5 overdraft fees on their checking account per month while maintaining a healthy balance in their savings account. Know who banks hate? Poor people defaulting on their loans that won't get collected. Know who banks love the most? People who park large amounts of money in them. That money makes banks bank. Banks and credit card companies aren't just leeching off the poor. They have various sources of income.
There's more nuance to the system than just "fuck the poor" and framing it that way just muddies the waters.
I'm basing my view on the classic Boston Fed paper https://www.bostonfed.org/publications/public-policy-discuss... . I don't keep up much with the literature, so you can probably find rebuttals and more complex models in the last 13 years of economic research, but I think the big picture largely stands -- all prices are increased by 200bps, and super-prime customers get most of it back as a rebate on their credit cards.
I.e. I have two 2% cashback credit cards even though I make <$30k/yr.
Maybe credit card loyalty systems are specifically, but if you want to make comments about the entire system of credit cards then you should look at the entire system of credit cards to figure out who’s subsidising who. On the other side of credit card rewards the fact that revenue from high spenders subsidises credit account defaults. If you chose to only focus on that single element of the system you could just as reasonably say that credit cards are a progressive tax on the rich.