How high-end credit card perks are hurting shoppers who pay in cash

The total credit and debit card fees paid by merchants to card processors, led by Visa and Mastercard, have increased 70% since 2019 to $198 billion in 2025, according to data from the Nilson Report. The rise has been fueled by an overall increase in consumer spending, a shrinking number of people using cash and an uptick in fees charged by credit card companies that largely go toward funding rewards programs.

The National Retail Federation, an industry organization pushing for legislation to reduce swipe fees, estimates those fees add more than $1,200 a year in higher prices for the average household.

The pain from those costs isn’t being felt equally. For customers paying with credit cards that offer rewards, those higher prices are offset by the perks they get from their card, like cash back, points that can be redeemed for flights or access to airline lounges.

But for those paying with cash or a debit or a credit card that doesn’t come with any perks, there is no reprieve: They are bearing the brunt of higher prices — without receiving any benefits.

This amounts to a wealth transfer of about $30 billion a year from people who pay with cash and debit cards to people who pay with credit cards, a Harvard Business School study estimated this year. That’s equivalent to raising the average sales tax rate by around 16% for people who pay in cash.

“From the credit card user’s perspective, they have to pay a higher price, but they’re going to get most of that higher fee the merchant pays back in the form of rewards, so in some cases they come out ahead,” said Mark Egan, an author of the study and a professor at Harvard Business School. “If I pay with cash, I pay a higher price, but I don’t get any rewards, so I’m going to be hurt by that.”

This disproportionately hurts lower- and middle-income Americans, since those groups are more likely to use cash, according to data from the Federal Reserve. Meanwhile, premium credit cards that offer luxury perks are more likely to be used by higher-income consumers because they come with expensive annual fees and minimum credit score requirements.

The disparity in who pays the price for credit card rewards comes as America faces a growing economic divide. The wealth gap between rich and poor in America is the widest it’s been in at least a generation — and growing. While the wealthiest Americans have seen their wealth grow from record stock market highs and rising real estate values, the average American has seen their earnings decline, job prospects weaken and costs continue to rise.

The Electronic Payments Coalition, an industry group representing credit card companies, said that the Harvard analysis “rests on a set of faulty assumptions that bias these estimates upwards.” The group said the study doesn’t account for the expenses to retailers of using cash, including the cost of cash pickups and bank charges, or the benefits of credit cards, such as protections against fraud and faster transaction times.

“Cash isn’t free for small businesses. That is why businesses are going cashless — not the opposite,” the Electronic Payments Coalition said in a statement.

Cody Newman used cash to buy a snack and Gatorade at Tiger Fuel in Ruckersville on a recent Tuesday morning. He said he avoids using a credit card because he worries about getting hit with interest payments if he’s unable to pay off his balance.