Credit Card Implicit Monetary Transfer
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[edit] Summary
- Cash-using households pay $151 to card-using households
- Card-using households receive $1,482 from cash users every year
- Low-income households ($20,000 or less annually) pay $23 every year on average
- High-income households ($150,000 or more annually) receive $756 every year on average
- "Eliminating the merchang fee and credit card rewards (together) would increase consumer welfare by 0.12 to 0.21 percent"
[edit] Text
"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."
[edit] Source
Who Gains and Who Loses from Credit Card Payments? Theory and Calibrations
