I had a 1% cash back credit card. It gave me $1 back for every $100 I spent. I don't believe in easy free lunch. What's the catch? What do I lose from these cash back programs?
I can't think of any advantages of cash back for the bank. I can only think of a disadvantage: abuse by cardholders. For example, if I'm buying a $1 soda, I could ask the cashier to charge $100 to my card and give me $99 back in cash. With $1 from the credit card's cash back, my soda effectively cost $0.
How do banks gain from cash back programs?