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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 strategic driver to increase electronic payments. However, there is scarce evidence on the effectiveness of rewards programs. This paper offers novel evidence on two key issues: i) it measures the impact of rewards programs on the use of payment cards; and ii) it quantifies their economic impact in terms of the cash substitution. The results show that rewards may significantly modify preferences for card payments, their economic impact vary significantly across types of rewards and merchant activities and rewards seem to be more effective on average for debit cardholders. JEL Classification: G20, D12, E41

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Bibliographic Info

Paper provided by European Central Bank in its series Working Paper Series with number 1141.

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Date of creation: Dec 2009
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Handle: RePEc:ecb:ecbwps:20091141

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Keywords: cardholders; merchants; payment cards; preferences; rewards;

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Cited by:
  1. 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.
  2. Ching, Andrew & Hayashi, Fumiko, 2008. "Payment Card Rewards Programs and Consumer Payment Choice," MPRA Paper 8458, University Library of Munich, Germany.
  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. 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.
  5. Wilko Bolt & Sujit Chakravorti, 2010. "Digitization of Retail Payment," DNB Working Papers 270, Netherlands Central Bank, Research Department.

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