Complex Systems with Patrick McKenzie (patio11) No, poor people aren’t funding your credit card rewards
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Mar 27, 2025 The podcast dismantles the myth that low-income individuals fund credit card rewards for the wealthy. It highlights that interchange fees, not interest charges, primarily support these rewards. The discussion reveals that rich consumers spend more, ultimately benefiting from the system. The hosts delve into the competitive strategies banks use to attract and retain cardholders and explain how different financial profiles influence user behavior and credit card product design. The reality of credit card rewards is far more complex than it seems.
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False Claim of Subsidization
- An Atlantic article claims the poor subsidize the rich via credit card interest.
- Patrick McKenzie argues this is false, as rewards are funded by interchange fees.
Interchange Funds Rewards
- Interchange fees, paid by businesses, fund credit card rewards programs.
- These incentivize spending by putting logos in wallets and on phones.
Interchange Rates Vary
- Interchange rates are not fixed; they vary based on card and merchant type.
- Higher-tier cards aimed at wealthier individuals incur higher interchange fees.