This 'Money-Saving Perk' Sounds Too Good to Be True. It's a Scam, Right?

"When businesses agree to accept credit or debit cards for payment, they have to pay processing fees. The biggest portion of those fees are called "interchange fees," and they help fund those fancy rewards programs. In the United States, this fee is usually about 2 percent of the transaction. That can be a hefty cost for businesses—especially small businesses."

"Research from Northwestern University's Kellogg School of Management found that customers end up paying for those fees, either through merchants adding a surcharge for customers paying with cards or merchants increasing product prices. The same research found that businesses that choose to absorb the fees are likely to struggle and close, which means fewer options for consumers to take their money."

"If you zoom out a bit, rewards aren't all that rewarding. We're all absorbing the cost of these programs, whether it's through higher prices or fewer options of where to spend our money."

Cash-back credit card rewards appear beneficial but have hidden costs. When businesses accept credit cards, they pay interchange fees—typically about 2 percent of transactions—that fund reward programs. Research from Northwestern University's Kellogg School of Management demonstrates that merchants pass these fees to consumers either through surcharges, price increases, or by struggling financially and closing. While individual cardholders may gain cash-back benefits, the broader economy absorbs these costs through higher prices and fewer consumer options. The apparent free money from rewards programs is ultimately funded by all consumers, making the overall benefit questionable when viewed from a systemic perspective.

Read at Slate Magazine