Every swipe of a rewards credit card generates perks for the cardholder, but researchers say the costs of those rewards are shared more broadly.
Data from Harvard Business School found that credit card interchange fees effectively transfer about $30 billion annually from consumers who pay with cash and debit cards to those who use rewards credit cards.
According to NBC News, the total credit and debit card fees paid by merchants to card processors reached nearly $200 billion in 2025, an increase of roughly 70% since 2019. To the extent that merchants pass these costs on to consumers through higher prices, those higher prices are partially offset for credit card users by perks such as cash back, travel rewards, and points programs.
Consumers who pay with cash or debit cards, however, generally receive no comparable benefits. Because credit card use tends to increase with income, the effect is also regressive. The researchers estimate that more than $9 billion is transferred each year from low- and middle-income households earning less than $150,000 annually to higher-income households.
Like a Tax on Debit Card Users
The costs can be significant. For consumers who primarily pay with cash, that effect is roughly equivalent to raising the average sales tax rate by about 16%.
These estimates are mitigated somewhat by other factors inherent in the payments ecosystem. As the researchers note, consumer sorting—where users of different payment methods tend to shop at different merchants—means that cash and debit card users may not bear the full impact of interchange fees.
Rewarding Credit Card Use
There are several reasons the current model has evolved as it has. Credit card transactions involve risks that are largely absent from cash payments, including fraud, chargebacks, and the possibility that cardholders may fail to repay their balances. Interchange fees help compensate issuers for assuming those risks.
“The study seems to miss the fact that lenders also absorb the losses for purchasers that fail to repay, which did not seem reflected in the analysis,” said Brian Riley, Director of Credit at Javelin Strategy & Research.
Retailers also have incentives to encourage credit card use.
“One common benefit of cards is that they have higher average purchase amounts and enable borderline buyers to effect the transaction,” Riley said. “This creates a merchant opportunity to scale payments and create economies of scale, which also does not seem to be a part of the study.”