If you pay with cash, you are effectively paying for the 'free' airline miles of the person in front of you.
April 16, 2026
Original Paper
Who Pays for Payments?
SSRN · 6566862
The Takeaway
This paper exposes a massive hidden transfer of wealth: credit card interchange fees. These fees are baked into the price of every item at the store, meaning that cash and debit users—who tend to be lower-income—are subsidizing the rewards, points, and cashback of high-end credit card users. It’s a $30 billion annual transfer from the poor to the rich, hidden inside the cost of milk and gas. We think of credit card rewards as 'free money' from the bank, but they are actually a tax on people who can't afford the cards. It reveals that the modern payment system is a 'reverse Robin Hood' mechanism that we all participate in every day.
From the abstract
We use novel data on the composition and cost of payments across U.S. merchants to quantify consumer redistribution in the payment system. Cards charge interchange fees to merchants to fund consumer rewards. When merchants raise prices for all consumers in response to these costs, users of low-cost payment methods (e.g., cash and debit) cross-subsidize high-reward credit card users who shop at the same merchant. This standard mechanism implicitly assumes that consumers using different payment me