How Much of the Swipe Fees Do Credit Card Companies Give Back to Us?

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Every time you use your credit card, the bank is earning swipe fees from the merchant. It’s these swipe fees plus other ways that banks profit off credit cards–interest fees, late fees, advertising to cardholders–that pay for the perks we get from credit cards.

How much of these fees are rebated to us? According to a recent article in The Economist:

[C]ard issuers are providing bigger rebates on purchases, more frequent-flyer miles as a sign-up bonus and longer interest-free periods for those who transfer balances from other cards. Mercator Advisory Group, a consultancy, estimates that the amount of revenue from each transaction passed back to the customer has been growing for years. In 2012 it put it at 47% for three of the biggest issuers, up from 39% in 2010.

According to the Mercator Advisory Group (according to The Economist) we got back 47% of the revenue from each transaction three years ago. Unfortunately I couldn’t find the underlying study or press release anywhere online by googling all the relevant keywords. If you can, please post a link in the comments.

I get back a lot more than 47% of the swipe fees the bank collects on me. So much of my spending is going toward clearing sign up bonuses and maximizing category bonuses, that I definitely average more than 3 miles per dollar across all my spending. Even assuming credit card companies can buy miles for 1 cent each (I don’t think they get them that cheaply), that works out to costing credit card companies at least 3% of my purchases in rewards. There’s no way they are making that back off swipe fees (or any other fees, since I don’t ever pay interest.)

Of course, there’s nothing average about the way I approach credit cards.

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One other interesting chart from the article:

Ignore the red line and focus on the blue bars, which show that the average bonus miles offered on new cards rose from about 9,000 in 2011 to about 14,000 in 2015.

What? Huh? What?

The only time I see an airline card with such a putrid bonus is the 10,000 mile offer on the JetBlue card. Every other airline card offers 25,000, 30,000, 40,000, or 50,000 miles (like on the American Airlines card at the moment.) And sometimes airline bonuses hit as high as 100,000 miles like on the American Airlines Executive card last year.

The only possible way to get such tiny averages (9,000 and 14,000) is if the calculation includes all credit cards, many of which come with zero bonus. That’s a weird way to construct the average: averaging in a bunch of zeros.

Bottom line: it’s always fascinating for me to read the mainstream media on credit cards and miles because, on the one hand, they have better access to certain data and can do more research, and on the other hand, they don’t get it.