One major benefit for the merchant/ card issuer is that they get tracking data on what you purchase and can identify it with you personally. This helps them with targeted advertising etc.
As a further example of the targeted advertising, suppose that a chain finds that customers in a particular store buy more than the normal share of ethnic foods. They then go to an ethnic food distributor or manufacturer and suggest a joint marketing effort for additional ethnic items in that store with the distributor offering free samples, special incentives etc during the first month (which they do since the store has the data to show it will make them money). Then the chain emails or snail mails every customer that has purchased ethnic foods in that store announcing the grand opening of the expanded ethnic section and including "exclusive" coupons and special offers to bring in additional traffic during the first month.
Now consider a mistake by a chain. They decide they are going to sell Lutefisk in every store and make a big purchase. The ship it to stores all over the country and it flops; except in Minnesota. So rather than dump it they ship it to the stores in Minn. (remember they have lots of it) and email all the customers there with a special promotion: "As a special thank you for being such a loyal customer we want to give you 10 lbs of lutefisk with a purchase of $100 or more." The customers in Minn. love the store while the customers in Texas love them even more now that the fish is no longer on the shelves there.
Think chains don't make mistakes? Have you heard of New Coke? The point is that somebody, somewhere wants the mistake and if you know who they are... Consider the poor manufacturer who made the mistake and can't get rid of the product for love nor money. If you, the chain, know who wants it, even if it is only one store in Saskatoon, then you buy it for pennies on the dollar, ship it to Saskatoon, mark it up and run a big ad:
"Mega-chain store, the only store that caters to your desires, listens to your requests. Now the exclusive source for your favorite product. Or competitors may have decided you can't have it simply because people in the US don't want it but not us. We go out of our way to scour the world to find and offer what you, the people of Saskatoon, want."
As they say, information is king. Gather and analyze it properly, capitalize on it. In no time you too can be selling refrigerators to Eskimos!
For example many supermarkets will print coupons on the back or bottom of your register receipt. When you use the card the can instantly personalize the coupons they print on your receipt.
As an example of the benefit to the merchant of coupons based upon your history; suppose they find, for you in particular, that every time a pound of bratwurst goes on sale for $2.99 or less you buy two pounds and at the same time you also buy sauerkraut and a six pack of beer with a probability of 90 percent. Now they know that even if bratwurst costs them $3.10 a pound they will still make money overall because of the beer. For you they might print a coupon for one pound of bratwurst at $2.95. Now consider some other customer who buys bratwurst whenever it is less that $3.50 per pound. For him they might print a coupon for bratwurst at $3.45 per pound.
Taking this one step further, the store now has excellent demographic data that they can sell to the beer and bratwurst manufacturers.
This ability to price the same item differently for each individual customer can be a great way to maximize profits. Without the card it would be virtually impossible.
Benefits for buyers? Well one local drugstore offers 20% off for the year after you have spent so many dollars. They keep track based upon use of the card.