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Coming from a culture less heavy on credit card use than the USA, I find the cashback concept a bit strange. I understand this: the merchants pay interchange f

Coming from a culture less heavy on credit card use than the USA, I find the cashback concept a bit strange. I understand this: the merchants pay interchange fees to the issuer, the fees are higher than the cashback. Then the credit card issuer gives a part of this interchange fee back to the card holder as a cashback. So basically you fund a (tiny) zero interest loan to the credit card company and get part of the money back later. But doesn't the merchant price in the interchange fee? I.e. prices are higher under the cashback system? If prices are not higher, who in the end pays for the interchange fees?

whitepoplar 8y ago
It's a horrible system, and market economics would state that credit card interchange is simply a hidden tax on goods sold. But, it's the system we've got and if you choose to opt-out of credit cards in favor of debit/bank cards, you pay the same price for stuff but don't get anything back for it. Moreover, credit cards offer stronger consumer protections than debit/bank cards in cases of fraud. One correction--the credit card issuer actually gives a 30-60 day loan of the entire purchase amount to the customer. If you pay off the complete balance by the due date (you can easily set this up via bank autopay), you're charged 0% interest, plus you earn any credit card "rewards" on top of that. It's all really a rigged game by financial institutions to get people to go into high-interest credit card debt (where they make all their money), but if you pay your balances off each month, it's the most efficient option. Hopefully we'll see its eventual demise.