Cash is expensive

A new study by the Boston Fed reports on the impact of credit card interchange fees on the prices we pay to merchants. Credit card interchange fees are the 1%-2% charges paid by merchants on credit card transactions. Because almost all merchants charge the same price for cash and credit card purchases, people paying cash end up paying a little bit more, while people paying with credit cards end up paying a little bit less.

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. 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 $23 and the highest-income household ($150,000 or more annually) receives $756 every year.

• credit cards
• economy