Parth Vatsal is the product lead for payments at San Francisco-based online freelancing platform Upwork.

Credit card rewards are often seen as a benefit for consumers, offering perks like cashback, free flights, or lounge upgrades. But behind these "free" rewards lies a question: who truly bears the cost of credit card rewards? The answer reveals a less glamorous side of the system, especially for those who can’t afford credit.

Let’s consider a simple scenario: three families dining at a restaurant. Each family’s bill is $100, but they pay using different methods. Family A pays with cash, so the restaurant keeps the full $100. Family B uses a Chase Sapphire Reserve (premium credit card), so the restaurant receives only $97. Finally Family C uses a Chase Freedom (basic credit card),so the restaurant gets $98.

Wait. Why did the restaurant get different amounts for the bill amount on these three transactions? First, cash is king and does not take any effort to exchange hands and hence it is free. Second, between the two credit cards, there is a discrepancy in what the restaurant receives, due to the card fees that a merchant has to pay to process that payment. The fee varies based on the type of card used, with premium cards generally costing merchants more.

But why does processing payments from a premium card differ from that of a basic credit card? From a “cost to process” payments, these cost the same.

A key factor in why merchants make less on some cards than others are the reward programs tied to premium credit cards. A card like the Chase Sapphire Reserve offers more rewards than a basic card like the Chase Freedom. But these rewards come at a cost, which merchants are forced to cover even though they see no extra direct benefit when a customer uses a more expensive card.

The networks, such as Visa and Mastercard, require that if a merchant accepts one type of card, they must accept all cards under that network. This means merchants can’t reject more costly cards (Chase Sapphire) without refusing to accept credit cards altogether, which isn’t a viable option for most businesses as customers are too used to living on credit (cards).

Let me be clear: Credit cards do offer advantages over cash but there should be no reason for the distinction in the money that merchants get based on the type of card that a customer pulls out of his wallet. For small businesses that are working to keep the lights on, the 2% to 3% transaction fee adds up pretty quickly.

To cope with these fees, many merchants raise their prices by about 3%, effectively passing the cost of credit card rewards on to all customers, whether they use cards or not. For merchants, this can be a win — they no longer directly pay the processing fees. For credit card users, it’s also not a terrible deal, as they’re still earning rewards. But for consumers who can't afford to use credit, this price increase is an extra burden. This further widens the economic gap between those who can afford credit and those who can’t.

In a world where income inequality continues to grow, the proliferation of credit cards and their associated reward systems adds to the issue. While rewards may feel like a bonus for those who use credit cards regularly, they ultimately come at a cost — and it's often those least able to afford it who end up paying the most.