Study: Top Earners Profit From Credit Card Rewards While Lower-Income Consumers Pay More in Fees

Consumers with relatively high incomes earn approximately $100 more per year in credit card rewards than they pay in fees and higher prices, according to a new study from Economist Alexei Alexandrov. But middle and working-class individuals pay from $300 to $500 more in card fees and higher prices than they receive in rewards each year.

The higher prices are a result of merchants likely spending more to process credit card payments than debit card transactions, and “that this cost translates into increased prices to all households,” according to the study’s findings.

With buy now, pay later (BNPL) programs growing in popularity — a recent report forecasts BNPL to increase at a compound annual growth rate of more than 10% from 2025 to 2030 — credit card issuers need to consider the sustainability of their approach to servicing customers of all income levels.

That’s particularly true if, to fund its rewards programs, an issuer relies on the interest fees it receives from middle and working-class consumers, who may turn to BNPL products to avoid card interest charges.

We sat down with Alexandrov to discuss his study and its implications. Alexandrov is a former employee of the Consumer Financial Protection Bureau who now contributes at multiple organizations including the Urban Institute, but he told us he issued this study as an independent researcher.

Two different types of consumers use credit cards, Alexandrov said. One type is what he refers to as transactors, or those who typically use their credit card as their primary payment device and don’t keep balances.

“They’re the ones who are using their credit card every day for all of their purchases, and they’re the ones who are getting rewards,” Alexandrov said. “They’re not paying high interest rates on their credit card purchases because they don’t keep balances. And, because of that, they’re also not paying credit card late fees.”

Transactors also tend to have relatively high rates of savings that enable them to avoid having to overdraw their bank accounts, Alexandrov told us.

The other group of consumers are more likely to use cash or debit cards to complete payments, but they still own credit cards, Alexandrov told us. This group primarily uses their credit cards to borrow money, and they’re more likely to carry debt on their cards.

“These are the people who miss out on rewards and get stuck with high interest rates on their credit card balances,” Alexandrov explained. “And, of course, these are the same people who tend to get overdraft fees and credit card late fees. Credit cards can be an expensive mechanism for those that are basically using their cards to borrow.”

Alexandrov said lenders aren’t likely to find the results of his study too surprising. After all, many credit card companies have been in business for decades, and one way companies maintain success through the years is by knowing their customers.

Issuers tailored many of the credit card rewards systems in place today to suit the needs of the transactors, Alexandrov told us.

But he said that hasn’t stopped issuers from extending offers to those who pay with their cards when it’s their only option to complete a purchase — not because it’s the payment form that’ll give them access to the best rewards.

Alexandrov said many credit card issuers can predict how cardholders will use a card before they even have it in their hands. Issuers can use information from credit bureaus to project whether a potential customer will tend to carry balances on their card from one month to the next. 

“The interchange income right now justifies having people who are not going to have card debt as customers,” Alexandrov told us. “These customers are bringing in a ton of profit, so why not have them? You still dole out at least some of that in the rewards, but it’s still profitable to you as an issuer at the end of the day.”

Credit card issuers, like all other types of businesses, want to retain profitable customers. But that may be challenging in the face of increased payment options, such as BNPL programs.

A consumer who doesn’t have sufficient funds on hand or in their bank account to complete a transaction may turn to BNPL solutions to avoid interest charges on a credit card purchase.

Alexandrov said issuers can employ educational programs to teach their customers about responsible credit use.

Having a more responsible customer base may cause an issuer to lose revenue they had realized from interest charges. But it may also cause revenue from interchange fees to increase as educated customers use their cards more often for purchases.

“It would be great to have more informed consumers that better understand the products they’re dealing with, because that could inform their choices,” Alexandrov told us. “For example, is it worth it to try to get an installment loan and roll over all of your credit card debt to that loan instead? Having a better knowledge of options could be great for people.”

Regardless of what type of education program a credit card company offers, Alexandrov stressed the importance of assisting people early in their financial journeys. 

Credit card issuers that offer financial education to cardholders may see card transaction volumes increase.

He told us that teaching people about credit while they’re in high school would equip them with the knowledge they need before making credit decisions that can impact a large part of their financial futures. 

Many credit card companies offer disclosures that allow consumers to compare card features. But detailed disclosures may not be enough to help a consumer make responsible decisions with credit.

“Disclosure forms are never going to go away, and hopefully we will make them even better over time,” Alexandrov said. “But I don’t think that in any realistic world disclosure forms are going to be enough.”

The economist left us with a piece of advice that should make credit card issuers smile. He said that individuals who do not plan to carry balances on their cards should be using them to complete their everyday purchases.

“By yourself, you’re not going to change the entire system, and you’re still going to pay for all the merchant costs implicit in the higher prices if you don’t pay with your credit card,” Alexandrov said. “So, you might as well use your credit card.”