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Paper shows that credit card users win at the register, not cash users
Credit Card Terminal
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Kai Ryssdal: The ability to go into a store without a dime in your pocket and still buy something on your credit card is a great convenience. It is not, though, a free one. The store has to pay a fee to the card company for each transaction, a fee that is usually passed on to us through higher prices. A lot of people who use credit cards get those fees back, in a way, in the form of reward programs. Those who pay cash? They're just... payin'.
Marketplace's Eve Troeh has more on a new study from the Federal Reserve Bank of Boston.
Eve Troeh: Credit card company sell rewards cards hard.
Compilation of rewards cards ads: "At Citadel, the points pile up faster." "The only charge card that earns triple points on airfare." "...Like triple rewards on electronics."
Sean Harper watches these ads closely.
Sean Harper: I'm a total rewards card geek. I've stayed in all kinds of awesome hotels all over the world for free.
But Harper also runs a company that helps businesses negotiate the fees they pay each time a customer pulls out plastic. He says those fees can reach 4 percent of each purchase, and a chunk of that goes to cover the cost of rewards. People who pay cash chip in for people's free miles and cash back.
Harper: It's obviously true, just looking around that rich people use rewards credit cards and poor people pay in cash.
The Federal Reserve Bank of Boston found that affluent card users get about $750 worth of rewards a year. Customers who pay cash subsidize about $20 of that.
Joanna Stavins wrote the study. She says businesses should tell customers how much they pay in fees.
Joanna Stavins: It would help them make more informed decisions. It might not necessarily lead to changes in their behavior.
Stavins also says shops should be allowed to charge extra for accepting a rewards cards. Right now, that's illegal. But stores can offer discounts for cash, like Green's Beer and Wine in Myrtle Beach, South Carolina.
Don Kozlowski: Crown Royal regular price is $44.27, cash discount price $42.98.
Store director Don Kozlowski says customers who use cash save the store and deserve to pay less.
I'm Eve Troeh for Marketplace.
Sorry, Marketplace, I have to give you a big thumbs down on this one. The claim that cash users subsidize rewards cards is suspect. It would imply that the retailer is predicting pricing based on historical rewards card usage. However, because the fees involved can vary, it ultimately means the simplest way for most retailers to handle it is to raise all prices by up to 4%. By the way, that also improves their bottomline, since cash users are now in the minority, and we all end up paying the higher cost. I suppose if there is large transaction data, then the retailer can adjust the pricing accordingly, and maybe a Wal-Mart does that; but then a Wal-Mart is more likely to be able to negotiate down those fees in the first place much more easily than smaller retailers, and doesn't have to bother with the statistical hoopla.
And, if the Fed report is right, we should all go out and use our rewards cards more, which would in turn help who? Banks that got bailed out, who are hurting in their card departments because of high chargeoffs.
Which then brings us back to the conclusion we all should have drawn in 2008: the Fed is only on this green(ish) earth for one reason - to help banks do their best, even if it costs the rest of us.
A little more analysis and skepticism next time, please.
Didn't the credit card companies make discounts for cash disappear? I used to see signs for them, but not for some time. A cash discount could get me to leave the credit card in my wallet. That kind of behavior wouldn't please CC companies.
Hasn't Marketplace done stories in the past that showed that people who payed w/ plastic spent more on average than those who paid w/ cash, much more than the rewards were worth. Thus those getting rewards aren't winners, but actually losers overall.
What about the fact that simply owning a rewards card necessitates that you're part of a database that continually sends you out advertisements and promotions? Wouldn't even being a part of that structure encourage you to actually spend more money than if you didn't have a card to begin with?
