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How effective are rewards programs in promoting payment card usage? Empirical evidence

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  • Carbó-Valverde, Santiago
  • Liñares-Zegarra, José M.

Abstract

Card issuers have mainly relied on rewards programs as their main strategy to increase usage. However, there is scarce evidence on the effectiveness of these programs. This paper is addressing two topics which could have important managerial and public policy implications: (i) it estimates the impact of rewards on the use of cards and (ii) it quantifies their economic effects in terms of the cash substitution. We find that rewards may significantly modify choice for card payments. Their economic impact also varies significantly across types of rewards and merchant activities. Additionally, rewards seem to be more effective for debit cards.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Banking & Finance.

Volume (Year): 35 (2011)
Issue (Month): 12 ()
Pages: 3275-3291

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Handle: RePEc:eee:jbfina:v:35:y:2011:i:12:p:3275-3291

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Web page: http://www.elsevier.com/locate/jbf

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Keywords: Payment cards; Rewards; Choice; Merchants; Cardholders;

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References

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  1. John Simon & Kylie Smith & Tim West, 2009. "Price Incentives and Consumer Payment Behaviour," RBA Research Discussion Papers rdp2009-04, Reserve Bank of Australia.
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  17. Gene Amromin & Sujit Chakravorti, 2009. "Whither Loose Change? The Diminishing Demand for Small-Denomination Currency," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 41(2-3), pages 315-335, 03.
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Citations

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Cited by:
  1. Anneke Kosse & David-Jan Jansen, 2011. "Choosing how to pay: the influence of home country habits," DNB Working Papers 328, Netherlands Central Bank, Research Department.
  2. Andrew Ching & Fumiko Hayashi, 2006. "Payment card rewards programs and consumer payment choice," Payments System Research Working Paper PSR WP 06-02, Federal Reserve Bank of Kansas City.
  3. Kosse, Anneke & Jansen, David-Jan, 2013. "Choosing how to pay: The influence of foreign backgrounds," Journal of Banking & Finance, Elsevier, vol. 37(3), pages 989-998.
  4. Wilko Bolt & Sujit Chakravorti, 2010. "Digitization of Retail Payment," DNB Working Papers 270, Netherlands Central Bank, Research Department.
  5. Wilko Bolt & Sujit Chakravorti, 2011. "Pricing in Retail Payment Systems: A Public Policy Perspective on Pricing of Payment Cards," DNB Working Papers 331, Netherlands Central Bank, Research Department.

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