How Those Who Pay with Cash Fund Your Credit Card Rewards

Credit card rewards can be awesome. With good credit – and the right card – you can get yourself everything from free gas, to free movies or even a fully-paid trip to the Bahamas.

However, the question that people should be asking is, who actually pays for all that? This might come as a shock, but credit card companies aren't funding your honeymoon out of the goodness of their heart. In fact, as a recent video form Vox points out, they aren’t paying for it at all. Everyone else is.

Credit card companies are not making the bulk of their money on interest fees or annual charges. Instead, companies are able to make more money off of their premium cards thanks to their interchange fees – the small, 1.5 to 3 percent charge the bank applies to the store for each transaction. The bigger the rewards, the higher the charges. In 2017, retailers paid $43.4 billion in interchange fees alone.

Many stores find that their hands are tied, as they are typically obligated to accept all cards, forcing many to raise their prices as a result. Meaning that the stores, as well as those paying in cash, are funding your premium card holder’s first class flight to Prague.

For a more in depth look at this, as well as some predictions for what the future might hold for premium cards, watch the full video below.

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