Earlier this summer, Democratic Senator Dick Durbin of Illinois co-introduced the Credit Card Competition Act of 2023, a bill that has gained some bipartisan support. Under proposed regulations that would be implemented by the Federal Reserve, the bill intends to reduce the swipe fees paid by small businesses to process credit-based sales, which are often passed on to consumers through retail markups or credit card adjustment fees. (Surcharges for cards, or ostensible discounts for cash payment, have become prevalent throughout the food service industry in the wake of the pandemic.) The Merchant Payments Coalition, a business association in favor of the bill, asserts that swipe fees have doubled over the last decade, reaching a total of $160.7 billion in 2022. This has pushed additional transaction costs for the average household to over $1,000 per year.
Were the bill to pass, it could buttress the Biden administration’s efforts to use antitrust policy to contain inflation and potentially offset, to some extent, interest rate hikes by the Federal Reserve that threaten the post-pandemic surge in small business formation. As mainstream media report, reluctantly, on corporate profiteering, it’s evident that ballooning swipe fees and related charges are another example of the price-making power of major corporations. For advocates of regulation, limiting the ability of credit card companies to skim off the transactions of everyday consumers and small businesses is one way to improve the purchasing power of each and boost inclusive growth.
Since June, lobbyists for big banks and major credit card companies have ratcheted up opposition. Critics insist regulation would effectively impose new costs by curbing the appetite of credit card companies to offer sometimes hefty rewards to their customers. Brian Kelly, publisher of The Points Guy, a popular website that surveys reward programs, wrote that Durbin’s bill “would be destructive for our lucrative rewards ecosystem.” He added in an interview with Politico, “I thought it was too silly—with so much affecting our country and world—that there would be senators who’d try to take away our rewards.” Ignoring other reasons card companies might have to maintain their rewards programs (such as attracting new, younger, or less financially literate customers), Kelly claims that the fees are critical to fund an array of benefits.
Hyperbole aside, his remarks underscore that this is not a niche issue. Since they emerged in the early 1980s, credit card rewards programs have become an important but overlooked feature of the economy, generating their own kind of purchasing power for the financially savvy. The number of websites and news articles dedicated to ranking credit cards suggests there exists a real interest group with a material stake in preserving the perks they have scored from our heavily financialized economy. The rewards can indeed be substantial—at least for those consumers who can maximize these benefits and who qualify in the first place for cards that unlock access to thousands of dollars in discounted merchandise, services, and travel opportunities. Premium cards, some with annual membership fees, typically offer sign-up bonuses that put enrollees on their way to a free international flight; several cards offer extra points on dining out or additional cash back (i.e. statement credits) on specific categories of spending. Monthly offers, typically linked to fast food, sportswear, hotels, or luxury brands are another enticement. While statement credits are sometimes extended to “buy local” or “shop small” campaigns, most rewards are designed to direct consumer spending toward major corporations, further padding their profits.
The normalization and growth of this system is generally taken for granted. Stretching back before the rise of mass consumption in the 1920s, individual manufacturers, department stores, and grocers have long used coupons and flash sales to drum up business; competing rewards programs, one might deduce, are just another example of how modern markets work. In fact, they are an outgrowth of financialization and a reflection of the power of multinationals to shape consumer preferences. As opponents of swipe fees and other processing costs have pointed out, the majority of these fees are vacuumed up by the Mastercard and Visa “duopoly.” The price of efficiency and convenience at the point of sale contributes to a combined net income of over $24 billion a year for these two giants, who together control over 80 percent of their market. Entry to the world of rewards, meanwhile, only further nudges consumer spending on everyday expenses and gifts toward firms whose market share of their respective sectors dwarfs that of smaller competitors.
Small businesses appear to increasingly recognize the issue of credit card fees as a matter of basic economic democracy. Comparable to how anti-monopolists in the Progressive Era decried trusts that squeezed out small producers, fee opponents understand the system as another mechanism to redistribute wealth upwards. From their perspective, regulation to enable “network” competition will at the very least reduce extractive fees, with improved margins for smaller businesses, which could perhaps go toward maintenance costs, reinvestment, increased stock and services, and even savings for customers, such as more discounts and in-house loyalty programs.
More fundamentally, the rewards system functions as a tax on lower-income people because processing fees, which are usually embedded in the cost of goods and services regardless of payment method, compensate for generous benefits while eroding the purchasing power of those who are more likely to pay with cash or a debit card. Aaron Klein, an economist and senior fellow at Brookings, argues that “the scale of this redistribution is huge and growing,” and that it has generated thousands of dollars in untaxed rebates for upper-income households, especially those making $250,000 or more annually. According to a December 2022 paper from the Federal Reserve Board, credit card rewards have resulted in an “aggregate annual redistribution of $15 billion from less to more educated, poorer to richer, and high to low minority areas.” In this respect, Brian Kelly is absolutely right: the rewards are lucrative. They also double as a form of clawback from the tax system for the wealthy. Simply put, rewards ensure rich people get far more for their dollar than workers do.
The anti-regulation position cleverly posits that the cure is worse than the disease. Their main argument is that swipe fees fund both an essential customer service and fraud protection system—to the overall benefit of the financial sector, its jobs, and the health of the economy—as well as rewards that around three quarters of card holders use to get discounts on everything from groceries to luxury items and air travel. Eliminate the mechanisms that facilitate those benefits, and you will depress the animal spirits—in this case, the exhilaration that comes with a little extra indulgence that pays toward another one—that fuel consumption. Opponents further argue there is no way to guarantee that consumers will see savings from reduced swipe fees. Clamping down, in other words, would actually be a drag on economic growth.
The persuasiveness of this argument hinges on other structural factors that have led to the economy we have. The rewards system has been underpinned by increased credit access, which itself has been integral to e-commerce, digital banking, and the integration of poorer Americans into global markets for inexpensive consumer durables, clothes, and foodstuffs. Programs that offer points and cash back can conceivably boost the purchasing power of those who have not seen appreciable wage gains and have few practical ways to shrink their monthly budgets. Credit-based discounts for major brands may be of value to consumers who don’t have the option to shop local in any meaningful sense. Aspects of the post-pandemic economic recovery have probably also reinforced the appeal of rewards: the tight labor market of the last two years has led, finally, to real wage gains for the lowest paid workers, but inflation has eaten into the purchasing power of those who have not seen comparable bumps. Clinching a reward here and there undoubtedly eases some anxiety over the cost of living and the future of the economy.
Devotees to the rewards system nevertheless betray their own sense of entitlement to status symbols and upscale services that working-class people subsidize in a variety of ways. They are not merely defending rewards for “financial responsibility” in the form of rebates for balances paid in full. Only a relatively privileged segment of the population can take routine advantage of exclusive, card-curated discounts on hotels, foreign travel, and fashion. Modern conveniences like Uber and app-based food delivery, moreover, are sustained by demand from those who have relatively high credit limits and can pay off balances with enough regularity to limit the pain of interest; drivers and other gig workers, by contrast, are often compelled by their very financial insecurity to forego comparable indulgences. Without a doubt, opponents of regulation outside the banks and credit card companies themselves are affluent consumers who stand to benefit most from the “rewards ecosystem.”
While its beneficiaries may be a minority, strong attachments to this model of consumption illustrate the degree to which a neoliberal ethos is still deeply ingrained in American society. The relationship forged between perks and self-fulfillment, or “living your best life,” should underscore for economic progressives the challenge of how to redefine consumer welfare in an era of industrial strategy, climate risk, and heightened global instability. Amid premature declarations of neoliberalism’s death, neoliberal ideas about consumer welfare are not only invoked in debates over the merits of tariffs on Chinese goods and other policies to re-shore production. They animate subsectors like tourism, hospitality, and gig platforms, whose expansions have been heavily entwined with financialization. By stoking the primal satisfaction that comes from accumulating points while spending, the rewards system has propagated the illusion that credit—not high wages or the economic security of social democracy—facilitates the good life. The idea that if you play the game right you can have a taste of how celebrities and the Davos set live now reverberates throughout society.
What this sentiment appeals to is qualitatively different from a romantic belief in a people’s capitalism or the trade union aphorism that “nothing is too good for the working class.” Rather, it is a narrow conception of freedom of choice that became hegemonic through the consensus forged by figures on the right like Milton Friedman and Ronald Reagan and left neoliberals during the Clinton era. Low prices and consumer incentives, not diversified local economies and remunerative employment, became the measure of national economic health. This consensus was embedded in the late 1990s as financial deregulation led to a new wave of bank mergers and as big box stores, fueled by liberalized trade and new economies of scale, decimated mom-and-pop retail in smaller cities and towns. The steady democratization of credit, initially predicated on increasing economic opportunity and financial independence for women and minorities in the 1970s, also grew in this period, helping to sustain household demand as blue-collar wages stagnated.
As e-commerce exploded, obtaining a credit card became less a personal choice and more of a prerequisite to adequately participate in the market. From airlines to concert tickets to Amazon, cards became necessary. To make them more attractive and prop up demand for global supply chains of food, electronics, tools, musical instruments, toys, entertainment, and more, credit card companies expanded their offerings and juiced up their rewards. Outside comfortable retirees, few would be able to take full advantage of the advertised perks. As shown by the transfer of wealth that the points scheme has abetted, cumulative interest payments outweighed the monetary value of whatever deal poorer consumers managed to redeem from time to time.
None of the assumptions that drove this form of growth were seriously questioned when the 2008 global financial crisis struck. Instead, the notion of perks as a form of public good became a kind of gospel as Silicon Valley consolidated its economic might and cultural influence. During the uncertain recovery from the Great Recession, news media reported flashy profiles of the novel benefits and occasional pampering that tech workers received (not just the ping-pong tables, afternoon beers, and gourmet snacks, but massages and housecleaning). Many commentators began to hype the virtues of the so-called sharing economy. As college loan debt compounded, and millennials flooded a slack labor market dominated by fast-casual and retail chains, gig platforms like Uber, Instacart, Postmates, Fiverr, and Task Rabbit promised a side hustle for the underemployed. Airbnb, Grubhub, and ride share apps simultaneously offered access to a lifestyle that backpackers, couch surfers, late night revelers, and young shift workers couldn’t otherwise indulge. From New York City to Atlanta to the inexpensive vacation hubs of southeastern Europe, the evolving gig economy was marketed as a way to not merely make ends meet but thrive.
What were sometimes workable situations were more often desperate attempts to make rent. The gulf between the salaried tech and finance class and gig laborers widened, while the artificially low prices that these platforms offered were phased out by the same avaricious market forces that had generated them in the first place. Reports of Uber drivers saddled with debt and Airbnb’s exacerbation of the global housing shortage spread. Venture capital and asset inflation converted the nebulous sharing economy and the neighborhoods it touched into another playground for the ultrawealthy. In the meantime, millennials and Gen Z became enmeshed in a digitalized economy fueled by apps, gamified gig platforms, and unprecedented debt. Venture capital-backed tech was the catalyst, but everyday credit, enhanced by quantitative easing, was the engine that sustained all these transactions, creating new illusions of upward mobility and expectations of daily luxuries, even as the percentage of Americans who say they cannot afford a $400 emergency continued to grow.
From credit card bonuses to data-mined discounts for various underpaid, on-demand services, the broader explosion of rewards culture is but one symptom of the class polarization that the gig economy intensified. Its ubiquity could not exist without the bifurcation of economic opportunity and millions of workers shuttling about in search of patchwork and piece rate income. While the Biden administration aims for conventional full employment, some estimates suggest over a third of the workforce consist of gig workers, the majority of whom must contend with credit card interest rates that have soared over 20 percent.
One of the more prosaic reasons that a neoliberal logic persists in society, despite surges of populist anger over spiking inequality or shifting political winds in Washington, is that an unsuspecting public has become accustomed to poorer Americans subsidizing a plethora of goods and services in the form of fees and low wages, along with the state in the form of untaxed perks and rewards. In other words, the prevalence of rewards culture continues to normalize the ethos that markets themselves are best equipped to furnish consumer welfare—and the fiction that the financial sector has a benign interest in curating extensions to the purchasing power of everyday consumers. Ultimately, by implanting the expectation that “savings” and rewards can be accrued through smart spending, capital conditions society to rely on its incentives to achieve a decent standard of living, rather than demanding universal health care and other kinds of decommodified goods.
Our blithe acquiescence to this model of consumerism cannot obscure its demoralizing and atomizing effects. Perk-ification of the larger economy is so entrenched that scrolling for a deal or getaway has become habitual: we are compelled to behave like contestants and addicts, using rewards to relieve drudgery and distract us from dread. Like the commodification of one’s lifestyle choices through social media, perk-hunting is another facet of being an active citizen-customer. Ultimately, though, its allure only serves to delay the crisis of trickle-down economics. As the point players rally to defend their rewards, the rest of us keep swiping just to get by.