CREDIT CARD REWARDS: $9.2B WEALTH TRANSFER

Credit card rewards operate through a chain of costs passed down the economy. Merchants pay interchange fees to card networks—averaging 2-3% of transactions. These costs flow into higher retail prices for all shoppers, including the 40% of Americans who don't use rewards cards. Wealthy consumers capture the benefits. High-income earners hold premium cards offering 2-5% cash back, while low-income shoppers either lack access to rewards programs or use basic cards with minimal perks. The HBS analysis found this mechanism transfers wealth disproportionately upward. Non-cardholders and modest spenders effectively subsidize premium cardholder rewards through inflated prices. Card networks and issuers profit from both sides: merchants pay interchange fees, while cardholders generate transaction volume and spending. The system persists because individual rational choices—maximizing personal rewards—aggregate into a regressive market structure that benefits financial institutions and wealthy consumers at the expense of lower-income households.