Many rewards programs are also predatory in the way they want to sell your data so you are targeted by advertisers for products you wouldn't buy otherwise.
Granted, some slice of it is kept by the issuers, but it turns out issuers mostly make money on interest not interchange.[1]
[1] https://www.valuepenguin.com/how-do-credit-card-companies-ma...
Meanwhile in Europe the issuers are capable of running a profitable business on only 0.3% fees (and much lower for debit). So even though you may think rewards programs are nice, they are in the end costing you more, not giving you free money.
It’s just another cost of business. Sometimes you bump up the price to account for it, sometimes you take the hit in profit in exchange for more volume hand more profit).
Very rarely do businesses do “cost plus” pricing. They usually charge what they can.
Which is why prices are sticky.
For the businesses that price based on cost alone they usually reject credit cards all together. Long ago I shopped at a computer parts store that had the best prices and they were all focused on volume - no further discounts, no credit cards, no free delivery.
Honestly no. Price is relative. The sticker price might change, but the effective price depends on the customer. Largely generalized: Low-credit customers essentially subsidize the cost for high-credit customers. Let me explain:
So let's call the current price: p.
- The cash customer pays: p
- The rewards card user pays p - 1% (because they get cashback)
- The mid-level rewards customer pays p - 2%
- The premium reward users pay p - 5%
Now let's say that reward cards are banned. No more rewards cards. Let's call the new price (after rewards cards and their associated fees are removed) as 'n'. What would happen?
Scenario A: No Change
Now I believe if you got rid of rewards cards, then n = p. Merchants wouldn't lower prices, they would just keep them the same and pocket the difference. So now everyone loses, except for cash customers who are unchanged. But everyone pays p, which is at best the same as before, and at worse 5%+ more expensive by getting rid of rewards cards.
Scenario B: Utopia, the Merchants Care
Let's make the argument you are making, which is that maybe the merchants would be nice and give us a cut of the rewards card savings. This would save them maybe 1%. I suspect slightly less on average, but let's call it 1% to be generous.
So in scenario B: n = p - 1%
Yes cash customers win! They pay 1% less than before. But the majority of customers still lose. Cash customers are the only winners. Normal rewards card users are paying the same amount they were before. The bell curve of card users are probably paying 1% more, while the high-end premium card users are paying 4%+ more than before. The majority of consumer still lose, only cash customers come out ahead.
This scenario of course assumes that merchants are generous and pass on the savings. If this did happen, you would likely notice savings for a year or two at most, due to economics and market forces.
Eventually, like I said above. The price just becomes normalized and the price is the price once again. House or car prices go up slightly at first because of more money in customer pockets, employers are less pressured to give out high raises, so maybe income raises are 0.5% on average lower that year, and 0.3% lower the next year and 0.2% lower the year following (which actually makes it look like raises are increasing YoY other than the first year). This continues and 3 years later that 1% gain is normalized into the economy and becomes the new baseline and we are back where we started.
So no, everyone does not lose with rewards cards. There are winners and losers. You could argue that lower income customers (the ones most likely to pay with cash or low-end credit cards) pay the price for the higher-income customers (the ones most likely to have 800+ credit scores with premium cards).
So, largely generalized you could argue that low-credit customers subsidize the price of goods for high-credit customers. I think that's a more accurate argument. And to be clear, I'm not stating that it's fair, just that it's accurate.
If the average over all transactions was 1%, then the cash customers must have greatly outnumbered the 2-5% reward customers. In that case, the majority of consumers aren't losing. The majority benefits or sees no change.
If a majority of customers were in the 2-5% range, then the new prices must be more than 1% cheaper, maybe even 2% cheaper. So now all the cash customers and the 1% customers benefit. And the 2% customers might see no difference.