Over 10 years ago, there was already a study published by the Boston Federal Reserve about wealth transfers created by credit card systems. It wasn’t about debt, or the psychology of spending card vs cash. It was simply about the fact that merchants do not pass on credit card fees only to those who pay by card but instead, makes everyone pays for it by not practising price discrimination on
Why do you think credit card companies want to pursue high income card-holders? Because they earn money from merchant fees! And the more you spend, the more they earn. And obviously when they are giving you a $300 cashback when you first spend $3000 on your first month, they would have already made back about $90 from merchant fees on your expenditure. Any sort of ‘cashback’ system below 3% merely incentivises you to spend more while allowing them to still reap fees on your spending.
There’s no problem with forcefully collecting money from the merchants and retailers, then rebating customers parts of that in order to encourage customers to use credit card payments. But the issue with merchants charging customers paying cash the same price, is that it disproportionately puts the burden of fee payments on cash-paying customers.
If we are debating all the time in democracies how taxes and various government wealth transfer programmes should be worked out, why do we not think through about the kind of wealth transfers that the financial system we “trust” is performing in the economy?