Merchant fees and reward programs generate an implicit monetary transfer to credit card users from non-card (or AicashAi) users because merchants generally do not set differential prices for card users to recoup the costs of fees and rewards. On average, each cash-using household pays $151 to card-using households and each card-using household receives $1, 482 from cash users every year. The payment instrument transfer also induces a regressive transfer from low-income to high-income households in general. The authors build and calibrate a model of consumer payment choice to compute the effects of merchant fees and card rewards on consumer welfare. Reducing merchant fees and card rewards would likely increase consumer welfare.High interest and penalties paid by credit card borrowers on revolving debt may directly or indirectly fund some of the bank issuersa#39; expenses on card rewards. ... usea of credit cards by nonborrowing consumers is subsidized by liquidity- constrained consumers who borrow on their credit cards and pay high interest. ... In our calculations, rewards make up about 35 percent (a 8.5/24.2) of merchant fees.
|Title||:||Who Gains and Who Loses from Credit Card Payments?|
|Publisher||:||DIANE Publishing - 2010-11|