Comments on: The Poor Transfer Wealth to The Rich Via Credit Cards

By: nerdwallet

nerdwallet — Thu, 19 Aug 2010 16:28:14 +0000

Yeah, Visa and Mastercard get a cut of the merchant fee, but a good chunk of it goes to the issuing bank. In addition to this, the bank is also making money off of fees, interest, etc (the issuer, not the network). So the assumption that merchant fees alone are subsidizing rewards is false, because many rewards card users roll their balances over each month and sub-optimally pay huge amounts of interest in order to keep their meager rewards.

Amex and Discover are a bit different, because they function as both networks and issuers (except for the occasional co-branded Amex card), so the whole merchant fee goes to them. But the rest of the argument is the same.

By: Credit Card Chaser

Credit Card Chaser — Thu, 19 Aug 2010 15:47:59 +0000

I am with you – I think that the study is a load of crock (and here is why: http://www.creditcardchaser.com/why-the-reverse-r…

By: Investor Junkie

Investor Junkie — Thu, 19 Aug 2010 13:30:01 +0000

Good point, but I think you have it reversed. Visa, Mastercard and AMEX get a cut of the merchant fee. Meaning companies like Visa, Mastercard and AMEX profit is based upon the transactions through their network. So going back to your implied question, I'm not sure if Visa, Mastercard and AMEX subsidize reward points then or are the banks paying out the reward points themselves.

By: Melanie

Melanie — Thu, 19 Aug 2010 12:47:15 +0000

Doesn't the 1-4% on each transaction go to the issuing bank while the credit card provider makes profit on the interest, fees, etc.?

By: Holiday LinkStuff and More Rob Carrick Books

Holiday LinkStuff and More Rob Carrick Books — Thu, 19 Aug 2010 09:02:15 +0000

[...] Junkie comments on a recent study which says that credit card reward programs transfer money from the poor to the rich. He says this is nonsense, and I [...]

By: Weekend Reading – Differentiation Edition

Weekend Reading – Differentiation Edition — Sat, 14 Aug 2010 12:04:19 +0000

[...] The Poor Transfer Wealth to The Rich Via Credit Cards via Investor Junkie [...]

By: Investor Junkie

Investor Junkie — Wed, 11 Aug 2010 13:00:25 +0000

Hi Debt Vigilante. Funny you mention "life isn't fair" as I did a post exactly on that subject:
http://investorjunkie.com/2153/life-isnt-fair-now…

By: Debt Vigilante

Debt Vigilante — Wed, 11 Aug 2010 01:54:04 +0000

I saw this same story. It is definitely one of those things in life that isn't fair. That being said, there are a lot of things in life that aren't fair and you just have to suck it up. At the risk of sounding heartless – many of the people that are negatively affected by this are also positively affected by those same people's taxes. (food stamps, unemployment, etc)

Im not saying its right, but taxing the middle class 30% isn't right either.

By: Best Blog Posts On Investing | Buy Like Buffett

Best Blog Posts On Investing | Buy Like Buffett — Mon, 09 Aug 2010 04:00:12 +0000

[...] Investor Junkie explains How The Poor Transfer Money To The Rich Via Credit Cards. [...]

By: Investor Junkie

Investor Junkie — Sat, 07 Aug 2010 03:03:47 +0000

WSJ has a new article about how points may go away because of the new finreg law.
http://online.wsj.com/article/SB10001424052748704…

By: Darwin's Money

Darwin's Money — Thu, 29 Jul 2010 11:19:25 +0000

Good point on how merchant fees are roughly aligned with rewards. You're right, it is class warfare, but that's something that's very popular in the US these days. Wouldn't be surprised if we actually see the administration move on this.

I'll be sure to steal your next post LOL :>