The question of ‘plastic or paper?’ has just taken on a whole new moral dimension.
In a new study from Federal Reserve Bank of Boston, authors Scott Schuh, Oz Shy, and Joanna Stavins ponder the question of “Who Gains and Who Loses from Credit Card Payments?” in the US.
The rather straight-forward answer-as-abstract:
Merchant fees and reward programs generate an implicit monetary transfer to credit card users from non-card (or “cash”) users because merchants generally do not set differential prices for card users to recoup the costs of fees and rewards. On average, each cash-using household pays $151 to card-using households and each card-using household receives $1,482 from cash users every year. Because credit card spending and rewards are positively correlated with household income, the payment instrument transfer also induces a regressive transfer from low-income to high-income households in general. On average, and after accounting for rewards paid to households by banks, the lowest-income household ($20,000 or less annually) pays $23 and the highest-income household ($150,000 or more annually) receives $756 every year. We build and calibrate a model of consumer payment choice to compute the effects of merchant fees and card rewards on consumer welfare. Reducing merchant fees and card rewards would likely increase consumer welfare.
As Mike Konzcal over at Rortybomb notes, “the credit card and cash in your wallet are little inequality-generating machines.” Those of you credit card-bearing readers feeling a touch guilty about all those greedy rewards points might do well to read this January New York Times article.
In addition to being a decent discussion of the complex credit card problem in general, it also has some suggestions for avoiding the worst of the reverse Robin Hood dilemma.
And just for the record, FT Alphaville does not take Amex.
Related links:
Who pays for the credit card awards? - NPR
GMU rejects credit cards because of high interchange… – Rortybomb
Credit card curveballs - FT Alphaville