Very few things in life are free and paying with a credit card isn’t one of them:
When you buy something with a credit card, the merchant often remits around 2% of the price to the bank that issued it. The fee can be higher, at times around 3%, on more generous reward cards. The bank returns some of these “interchange fees” (also called swipe fees) to the cardholder in the form of rewards, including cash back, points or airline miles. (Separate, smaller fees are paid to the payment networks, such as Visa Inc. and Mastercard Inc., and to the financial institution that helps process the transactions.)
https://www.wsj.com/articles/the-credit-card-fees-merchants-hate-banks-love-and-consumers-pay-11592731800
Businesses incur costs by accepting credit card payments and those costs just get passed along to everyone in the form of higher prices.
Even for someone like me who always pays off their credit card balances every month to avoid paying interest charges and whose received thousands of dollars in cash back and bonuses over the years, I’m partially paying for these rewards too through the higher cost of the products and services that I purchase with my credit card. But most importantly, to my benefit and to your detriment, unless you’re elite with your money, so are you:
Customers typically pay the same price whether they use cash or a card. Economists say this equates to a transfer from users of cash to users of cards. How much? On average a cash-using household pays $149 a year and a card using household receives $1,133, according to a 2010 study from the Federal Reserve Bank of Boston.
https://www.wsj.com/articles/the-credit-card-fees-merchants-hate-banks-love-and-consumers-pay-11592731800
On average, whether we pay with cash or credit cards, we all pay higher prices because of the additional costs merchants incur by accepting those forms of payments. People that only use cash pay $149 more a year according to the study mentioned above but just because you pay with a credit card doesn’t mean you come out ahead. About 40% of U.S. households carry a credit card balance month-to-month and they pay about $1,300/year in interest costs, so in those cases Americans would definitely be better off paying only in cash and losing that $149/year compared to losing $1,300/year in interest expense on credit cards.
At the end of the day, we all pay about 3% more for products and services just because of credit cards. For most people, paying these higher costs is a losing proposition and unavoidable but for a few the rewards can greatly outweigh the costs:
The discount to [credit card using] customers who often make hundreds to thousands of dollars a year “is a giant reverse Robin Hood moving billions of dollars a year,” said Aaron Klein, a fellow at the Brookings Institution specializing in the financial industry.
https://www.wsj.com/articles/the-credit-card-fees-merchants-hate-banks-love-and-consumers-pay-11592731800
Just one more reason people need to learn to manage their money better, optimize their spending and avoid credit card debt.
