How You're Unconsciously Paying for Someone Else's Vacation
- Gerald Quintos
- May 21, 2020
- 2 min read
Updated: Jun 15, 2020
Do you prefer using cash instead of credit cards? If you do then chances are you're paying for someone else's vacation. Sounds crazy and doesn't make sense? Let me explain.
When a customer buys something in a store using a credit card, the store is charged an "interchange fee" by the issuing bank. The "interchange fee" is a percentage of the total sale. The bank then uses this money to pay for your credit card rewards. You'd think they make most of their money on your late interest fees or the annual fees, but nope its mostly from the interchange fees.
Photo from Vox
Interchange fees aren't the same across credit cards and varies on the type of credit card you use. Basic cards with low rewards typically have less interchange fees compared to premium credit cards with premium rewards. An example would be a BDO Standard Mastercard probably having a lower interchange fee than a BDO Visa Gold since you're comparing a basic rewards card with a premium rewards card. So how do you end up paying for somebody else's vacation by paying in cash?
Payment networks like Visa and Mastercard require stores to honor all cards meaning they don't really have any negotiating power over the interchange fees. So stores have no choice but to accept cards with low or high interchange fees. As a result stores have resorted to increasing their retail prices in order to make up for the cost of accepting credit cards. Now you know why some stores give a discount whenever you pay in cash compared to credit cards.
So even if you don't use a credit card and use cash to pay for something, you're actually still paying for the rewards by buying the product with the increased prices from stores trying to offset their interchange fees.
During times that banks don't earn much on mortgages and corporate lending they tend to focus on consumer lending. To get more people to sign up to their credit cards, they offer bigger and better rewards, which lead to higher interchange fees.
Even if you're not swiping a credit card, rising interchange fees built into product prices mean you’re indirectly covering someone else’s rewards. For those looking to take control of their credit journey and one day earn their own benefits, starting smart is key. That’s where MyMilestoneCard – login for secure Milestone Mastercard activation comes in. While the official card portal is mymilestonecard.com, it’s fully supported by guidance from mymilestonecard.wiki, helping users activate and manage their card confidently. Build your credit today, and work toward enjoying the rewards you’re already paying into.