The Hispanic Institute

Trickle-Up Wealth Transfer: Cross Subsidization in the Payment Card Market

Since merchants charge consumers the same price regardless of payment method, the existence of payment card rewards programs implies that some customers subsidize the consumption of others. We surveyed a cross-section of U.S. consumers and asked about spending on groceries and gasoline, payment methods, and card rewards. From our data, we estimate the total amount transferred in the U.S. due to rewards on gasoline and groceries to be about $1.4b to $1.9b... 


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In examining the actual distribution of rewards, we find that higher income consumers received a higher rewards rate. Using gasoline merchant operating statement data, we find that card costs are passed through to the consumer. Therefore, rewards amount to transfers—transfers from low income to high income consumers which have a disproportionate impact on low-income minorities, a sort of regressive tax on consumption. We discuss several policy remedies.


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