Who Pays for “Rewards” on your Credit Cards? It’s You!!

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Its the end consumer who pays for the rewards on the credit cards not the bank or card network because of the merchant fees involved. How?

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So who exactly pays for Rewards on Credit Cards?

It’s the consumer and usually the less sophisticated people who don’t even have cards and pay in cash. Even the credit card user is somehow paying for the rewards.

But How?

For $100 of groceries bought in cash, your grocer receives the full $100 that you provide to her.

But for $100 of groceries bought with a credit card or a debit card, the grocer (merchant) receives only a portion of that total $100. Let’s say around $97.

What happens to those $3?

~$3 are deducted in transaction fees of payment. The merchant bears the cost. For reward cards, the merchant cost is even>$3.

And the merchant has no ability to charge the card user, an extra $3 for a variety of reasons.

Read: How Fintech is “Lending” a helping hand?

So what happens finally?

So a merchant or shopkeeper simply increase the costs of retail goods across the board for all consumers (cash or credit card) to cover the cost of processing fees.

A solution to this would be

• differential pricing based on the mode of payment.

• Utilizing rewards before they expire to cover up for the markup.

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