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Cash Payers Subsidize Cardholder Perks | Analysis by Brian Moineau

Posted on by Brian Moineau

TL;DR

  • High-end credit card perks don’t come free: U.S. merchants baked roughly $198.25 billion of 2025 card fees into prices, shifting costs onto cash and debit users while rewarding premium cardholders [3][4]. (merchantspaymentscoalition.com)
  • A Harvard Business School working paper estimates an implicit transfer of about $30 billion a year from cash/debit users—often lower-income households—to rewards card users [2].
  • The “easy fix” of cutting interchange looks oversold: after the 2011 Durbin cap on debit, about 77% of merchants did not lower prices, hinting new reforms could enrich large retailers while shrinking consumer rewards [7].

What the source said

NBC News profiled Tiger Fuel in Ruckersville, Virginia, and other small merchants who say rising swipe fees from Visa and Mastercard networks and issuing banks now rival or exceed rent and utilities [1]. Premium rewards cards often carry fees above 2%, and total U.S. merchant card fees hit about $198 billion in 2025, per the Nilson Report and industry tallies [3][4]. The National Retail Federation claims these fees add more than $1,200 a year to the average household’s costs [5]. Harvard researchers estimate roughly $30 billion flows annually from cash/debit users to rewards cardholders, while the Electronic Payments Coalition argues that cash handling also carries costs like theft risk and labor [2][13].

Why it matters

This isn’t “points people vs. Luddites.” It’s a regressive cross-subsidy embedded in 2025 retail pricing: cash and debit users—disproportionately households under $25,000 in income—fund airport lounges, 5x dining multipliers, and companion fares via higher shelf prices, while rewards users get some of it back as points [2][6]. Harvard’s $30 billion estimate and the Federal Reserve’s Diary of Consumer Payment Choice both show who pays and who benefits when merchants recoup acceptance costs through uniform pricing [2][6].

Merchants face a blunt P&L trade-off in 2026: accept card convenience and bigger baskets but pay rising tolls, or push cash/ACH and risk lost sales and chargebacks. Networks (Visa, Mastercard), big issuers (JPMorgan Chase, Capital One, Citi), and loyalty partners (United, Delta, American) live on interchange economics that fund rewards; banks alone collected about $66 billion of interchange revenue in 2025, according to the St. Louis Fed [10]. Policy tinkering can redirect billions across these pipes, but pass-through depends on local competition and merchant power, not promises in a press release.

Original analysis

High-end credit card perks and the cash shopper subsidy

  • Back-of-envelope math, shown:

    • Total U.S. merchant card fees in 2025: $198.25 billion (credit + debit) [3][4]. Total U.S. card purchase volume in 2025: $12.498 trillion [3]. Average all-in fee load ≈ 198.25 / 12,498 ≈ 1.59% on carded spend, before acquirer markups and MCC differences [3][4]. For low-margin formats like grocery, that burden explains why fuel stations and c-stores complained first.
    • What would a 10-basis-point (0.10%) cut do at the register? On a $100 basket, it saves $0.10; on $1,000,000 in monthly credit sales, it saves $1,000. The proposed Visa/Mastercard settlement’s five-year, 10 bps reduction would be meaningful for thin-margin operators, but small in a supermarket aisle price tag context [8].

  • A contrarian read:

    • Consensus: “Rewards are a regressive tax; cap interchange and prices will fall.”
    • Pushback: After the 2011 Durbin cap on debit, Richmond Fed surveys found about 77% of merchants did not cut prices; roughly 1–2% lowered them, and others raised them—weak pass-through from lower acceptance costs to shelf prices [7]. If credit caps replay this script, consumers could lose rewards value while prices mostly stay put.

  • A 2x2 to predict pass-through from fee cuts:

    • Low ticket, high competition (e.g., QSRs like McDonald’s; MCC 5814): Highest odds of pass-through via value menus and combo pricing to defend share.
    • Low ticket, low competition (e.g., captive venues at airports; limited-choice c-stores on highways): Low pass-through; fee relief pads margins or offsets rent.
    • High ticket, high competition (e.g., electronics retailers; Home Depot vs. Lowe’s): Moderate pass-through in promos, rebates, or free financing offers.
    • High ticket, low competition (e.g., airline direct sales; Delta/American/United): Minimal pass-through; savings more likely to fund loyalty tweaks or fees.

  • A named-stakeholder breakdown:

    • Visa and Mastercard: A time-limited 10 bps haircut is manageable; the bigger risk is the Credit Card Competition Act forcing routing choice that could erode network dominance [8][9].
    • Large issuers (JPMorgan Chase, Capital One, Citi): Expect incremental rewards repricing—fewer eye-popping multipliers, more annual-fee creep, and tighter lounge/partner access if interchange compresses.
    • Small merchants (gas, c-stores, restaurants): Savings from a 10 bps cut are real but thin; dual pricing, PINless debit routing, and steering will likely drive more net benefit in 2026–2027 than headline settlements [4].
    • Low-income cash users: The Harvard-estimated $30 billion transfer exists, but history suggests caps won’t automatically flow back as lower prices; cash-acceptance mandates and transparent dual pricing are more targeted [2][11].

What others are missing

The specific angle missing is the break-even basket size and fraud-loss variance by merchant category code: compare fully loaded cash costs (till labor, shrink, armored car, bank fees) against card acceptance (interchange, assessments, chargeback loss) for MCC 5411 (grocery), 5541 (service stations), and 5814 (fast-food/QSR). Industry groups highlight one side—NRF emphasizes card tolls; EPC stresses cash’s hidden costs—yet policymakers rarely see an apples-to-apples, third-party audit by basket size and format [5][13]. A 2026 benchmark that publishes per-transaction cost curves and pass-through elasticities by format would show whether “cash isn’t free” or “cards tax every item” dominates in real stores, not just in D.C. hearing rooms.

What to watch next

  1. By Q4 2026, Judge Margo Brodie either approves the revised Visa/Mastercard settlement or remands it; my call: not approved in 2026, given retailer opposition and limited structural change [12].
  2. By June 2027, at least three additional states follow New York’s March 2026 statute and enact cash-acceptance mandates for most brick-and-mortar retailers, citing equity for unbanked consumers [11].
  3. By 2027 year-end, at least one top-5 U.S. card issuer announces a meaningful rewards devaluation (earn rates or redemption), attributing it to program costs and regulatory pressure around routing and fees [9].

My take

Yes, premium credit card perks are hurting cash shoppers; the ~$30 billion annual transfer is real and persistent in 2024–2026 data [2]. But if Congress or the courts shave interchange without enforcing shelf-level transparency, consumers will likely lose rewards while prices stay sticky. The practical fix is local and testable in 2026: universal cash acceptance, visible dual pricing, and competitive routing that merchants can actually use [11]. If Washington wants broad relief, force price clarity and rivalry—not just a smaller toll collected in the dark [4].

Sources

  1. NBC News — How shoppers who pay in cash are subsidizing Americans’ credit card reward points (https://www.nbcnews.com/business/consumer/credit-card-perks-hurt-shoppers-pay-cash-debit-rcna346905) — Reported merchant pain points, cited network/issuer roles, and surfaced household impact claims.

  2. Harvard Business School — Interchange Fees and Cross-Subsidies in Consumer Payments (Working Paper 26-069) (https://www.hbs.edu/ris/Publication%20Files/26-069_6c4ebfc5-af17-4744-b8a5-3f2ca740aea7.pdf) — Estimated ~$30B annual transfers from cash/debit users to credit users, with incidence by income.

  3. The Nilson Report — Merchant Processing Fees in the United States — 2025 (https://nilsonreport.com/articles/merchant-processing-fees-in-the-united-states-2025/) — Provided 2025 U.S. purchase volume ($12.498T) and context for fee-load calculations.

  4. Merchants Payments Coalition — Credit and Debit Card ‘Swipe’ Fees Reach Record $198.25 Billion (https://merchantspaymentscoalition.com/credit-and-debit-card-swipe-fees-reach-record-19825-billion-president-and-congress-call-action) — Cited Nilson’s 2025 fee total and summarized merchant-side advocacy.

  5. National Retail Federation — Swipe Fees (https://nrf.com/advocacy/policy-issues/swipe-fees) — Claimed swipe fees are a top cost driver and add “more than $1,200 a year” to average household costs.

  6. Federal Reserve Financial Services — 2025 Findings from the Diary of Consumer Payment Choice (https://www.frbservices.org/binaries/content/assets/crsocms/news/research/2025-diary-of-consumer-payment-choice.pdf) — Documented higher cash use among low-income households and transaction-size patterns.

  7. Federal Reserve Bank of Richmond — Did the Durbin Amendment Reduce Merchant Costs? Evidence from Survey Results (https://www.richmondfed.org/publications/research/economic_brief/2015/eb_15-12) — Found limited post-cap price reductions, informing pass-through expectations.

  8. U.S. SEC — Mastercard filing summarizing proposed settlement terms (10 bps cut; caps) (https://www.sec.gov/Archives/edgar/data/0001141391/000114139125000197/exb991-11102025.htm) — Documented details of the November 2025 revised settlement structure.

  9. Congress.gov — Credit Card Competition Act bill page (https://www.congress.gov/bill/119th-congress/senate-bill/3623/all-actions) — Tracked routing-choice legislation that could change network economics.

  10. Federal Reserve Bank of St. Louis — Credit and Debit Card Fees Collected by U.S. Banks Rose in 2025 (https://www.stlouisfed.org/on-the-economy/2026/apr/banking-analytics-credit-debit-card-fees-collected-banks-rose-2025) — Estimated banks’ 2025 interchange revenue (~$66B).

  11. New York Attorney General — Statewide Cash Acceptance Law (Press Release, March 2026) (https://ag.ny.gov/press-release/2026/attorney-general-james-notifies-new-yorkers-about-new-state-law-requiring-stores) — Confirmed a cash-acceptance mandate trend shaping “cash equity” policy.

  12. American Bar Association — In re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation (newsletter) (https://www.americanbar.org/groups/antitrust_law/resources/newsletters/in-re-payment-card-interchange-fee-merchant-discount-antitrust-litigation/) — Summarized settlement posture before Judge Margo Brodie.

  13. Electronic Payments Coalition — Cash Costs More Than Credit Cards for Small Businesses (https://electronicpaymentscoalition.org/resources/cash-costs-more-than-credit-cards-for-small-businesses/) — Presented the industry view on cash-handling costs versus card acceptance.

AmEx Doubling Down on Wealthy Spenders | Analysis by Brian Moineau

Posted on by Brian Moineau

When the Rich Keep Spending: Why AmEx Is Doubling Down on High Rollers

There’s a certain poetry to a company that built its brand on luxe travel perks and exclusive lounges now deciding to lean even harder into luxury. American Express — the credit card company everyone associates with status, Platinum cards and concierge lines — is reorienting marketing and product investment toward its top spenders. The result is a clear snapshot of a K-shaped economy: one group keeps splurging, while the rest of the country watches their wallets more carefully.

A hook: imagine a restaurant where the back table orders another bottle of champagne — again

That’s American Express’s world right now. After reporting strong quarterly results driven by premium-card spending, AmEx told investors and analysts it shifted marketing dollars away from broad no-fee cash-back products and toward its refreshed Platinum line (now with a steeper annual fee and expanded perks). The strategy is straightforward: invest where spending — and merchant fees — grow the fastest.

What happened and why it matters

  • AmEx reported higher cardmember spending, a bump in luxury retail and travel transactions, and raised guidance for the year ahead. Premium product demand — especially for the refreshed Platinum card — moved the needle. (See source list below for coverage.)
  • The company is deliberately prioritizing higher-fee, higher-reward cards because those customers generate outsized transaction volume and attract merchants willing to pay higher acceptance fees.
  • That shift is profitable not only through higher card fees but also via “discount revenue” — the merchant fees that are AmEx’s primary revenue engine — and typically lower default rates among affluent customers.

The bigger picture: the K-shaped economy at work

  • The K-shaped recovery or economy describes widening divergence: one cohort (high earners and asset owners) enjoys income and spending growth, while the other sees stagnant wages and tighter budgets.
  • AmEx’s results read like a case study: luxury retail spending and first/business class airfares outpaced more general categories. Younger wealthy cohorts (millennials and Gen Z within AmEx’s premium base) are spending more on experiences — travel, dining, events — which plays directly into AmEx’s rewards and partnerships.
  • For AmEx, leaning into premium customers is both defensive and aggressive: defensive because those customers tend to be lower credit risk and higher-margin, and aggressive because it captures more high-value transactions before rivals do.

Why this is smart (and why it’s risky)

  • Smart moves:
    • Higher revenue per cardmember: premium cards command large annual fees and drive higher transaction volumes.
    • Better merchant economics: merchants accept AmEx for access to affluent spenders who buy big-ticket items and travel.
    • Strong lifetime value: affluent customers often show loyalty if perks and experiences align with their lifestyles.
  • Risks to watch:
    • Concentration: leaning more into high-net-worth customers exposes AmEx to swings if that cohort retrenches.
    • Competition: banks like Chase and Citi have aggressive premium products; battle for affluent customers can escalate perks and costs.
    • Brand friction: shifting marketing away from broad, no-fee products could alienate aspirational or younger customers who might later become premium members.
    • Regulatory pressure: proposals to cap credit card interest rates or change interchange rules could alter the math.

What this means for consumers and businesses

  • For wealthy consumers: more tailored premium benefits, more competition for your loyalty, and potentially increasingly segmented offers.
  • For mass-market consumers: fewer marketing dollars and product innovation aimed at no-fee or mid-tier products, at least in the near term.
  • For merchants: sustained willingness to pay premium merchant fees if it continues to deliver wealthy, high-frequency spenders.

How investors and managers might read the tea leaves

  • Investors could view AmEx’s pivot as earnings-accretive in the near term because higher-fee customers lift revenue and margins — but they should price in higher customer-engagement costs for upgrades and shelf-refreshes.
  • Management teams across retail and travel should note the asymmetry of demand: luxury and premium segments may warrant distinct merchandising, loyalty tie-ins, and partnership investments to capture affluent spending power.

A few takeaways for everyday readers

  • The economy isn’t uniform. Corporate earnings that sound strong (AmEx up, luxury spending up) can coexist with broader household squeeze.
  • Credit-card economics favor the spender: companies that drive top-line transaction volume from affluent customers have a different playbook than mass-market lenders.
  • Changes at major card issuers ripple through travel, hospitality, luxury retail and fintech partnerships — so a strategic nudge toward premium products can reshape customer experiences and merchant deals.

My take

AmEx’s tilt toward its highest spenders is both unsurprising and instructive. It’s surprising only in how explicit the strategy is: the firm is putting marketing muscle where returns per customer are highest. In a world where younger affluent cohorts want experiences and are willing to pay for curated access, AmEx’s move is consonant with consumer trends. But the company should keep one eye on diversification: a too-narrow focus on the top of the market can accelerate growth — and magnify vulnerability — if economic sentiment shifts.

Sources



Related update: We recently published an article that expands on this topic: read the latest post.

Related update: We recently published an article that expands on this topic: read the latest post.