Via TBB, a fascinating look at the economics of credit card reward programs, disproving the theory that interest-paying customers cover the costs of the rewards. In fact, "cash customers generally subsidize the rewards on credit cards through paying the same, higher price at the store but not getting rewards.”
The report cites a paper from the Boston Fed that states: “Finally, about 79 percent of banks’ revenue from credit card merchant fees is obtained from cash payers, and disproportionately from low-income cash payers… Merchant fees and reward programs generate an implicit monetary transfer to credit card users from non-card (or "cash" ) 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 $149 to card-using households and each card-using household receives $1,133 from cash users every year. Because credit card spending and rewards are positively correlated with household income, the payment instrument transfer also induces a regressive transfer from low-income to high-income households in general. On average, and after accounting for rewards paid to households by banks, the lowest-income household ($20,000 or less annually) pays $21 and the highest-income household ($150,000 or more annually) receives $750 every year.