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.

About the author

Eve Troeh is News Director at WWNO-FM in New Orleans, La., helping build the first public radio news department in the station’s 40-year history. She reported for the Marketplace Sustainability Desk from 2010 to 2013.

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