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of ConsumerAffairs
June 4, 2026
A new Harvard study estimates that credit card interchange fees transfer about $30 billion annually from cash and debit card users to credit card users.
Researchers found the payment system creates a regressive wealth transfer, with lower- and middle-income households effectively subsidizing rewards earned by higher-income consumers.
The study concludes that consumer sorting and lower fees negotiated by large merchants reduce the size of the transfer but do not eliminate it.
Paying with cash or a debit card will definitely prevent you from running up an unmanageable credit card bill. Theres nothing wrong with that.
However, a new study from researchers at Harvard University, Stanford University, Northwestern University and Georgia State University concludes that America's payment system redistributes roughly $30 billion annually from cash and debit card users to consumers who use rewards credit cards.
The study, "Who Pays for Payments?", examined payment data from approximately one million U.S. merchants and found that interchange fees the charges merchants pay when customers use credit cards are largely passed through to consumers in the form of higher retail prices.
Because merchants generally do not charge different prices based on payment method, all shoppers help cover the cost of those fees. If you pay with cash or a credit card, you dont get any kind of break. However, shopping with a cashback credit card give that consumer a slightly lower price.
"All consumers pay higher retail prices, but the users of high-interchange-fee credit cards capture most of the rewards," the authors wrote.
The researchers estimate that the resulting cross-subsidy transfers about $9.2 billion annually from households earning less than $150,000 per year to higher-income households, who are more likely to use rewards credit cards and premium cards with richer benefits.
Loss of purchasing power
According to the study, cash users effectively lose about 96 basis points of purchasing power because of interchange fees, while users of regulated debit cards lose about 47 basis points. By contrast, users of basic and premium rewards credit cards gain approximately 54 basis points in purchasing power through rewards funded by merchant fees.
The researchers compared the impact to a hidden tax.
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