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How Effective Are Rewards Programs in Promoting Payment Card Usage? Empirical Evidence

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  • Carbó Valverde Santiago

    ()
    (UNIVERSITY OF GRANADA FEDERAL RESERVE BANK OF CHICAGO)

  • Liñares-Zegarra José Manuel

    ()
    (UNIVERSITY OF GRANADA FEDERAL RESERVE BANK OF CHICAGO)

Abstract

Card issuers have mainly relied on rewards programs as their main strategic driver to increase debit and credit card payments. However, there is scarce evidence on the effectiveness of rewards programs. This working paper offers novel evidence on two key issues in this area using unique data from a comprehensive survey of cardholders: 1) it measures the impact of incentive (rewards) programs on the use of debit and credit cards, and 2) it quantifies the economic impact of these programs in terms of the substitution of cash by cards for payment purposes. The results show that rewards may significantly modify preferences for card payments. The evidence also suggests that the economic impact of rewards programs varies significantly across different type of rewards and across merchant activities. These incentives seem to be more effective on average for debit cardholders than for credit cardholders.

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Bibliographic Info

Paper provided by Fundacion BBVA / BBVA Foundation in its series Working Papers with number 201059.

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Length: 46
Date of creation: Feb 2009
Date of revision:
Handle: RePEc:fbb:wpaper:201059

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Keywords: Payment cards; rewards; preferences; merchants; cardholders.;

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References

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  1. Feinberg, Richard A, 1986. " Credit Cards as Spending Facilitating Stimuli: A Conditioning Interpretation," Journal of Consumer Research, University of Chicago Press, vol. 13(3), pages 348-56, December.
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  3. Jonathan Zinman, 2005. "Debit or credit?," Conference Series ; [Proceedings], Federal Reserve Bank of Boston.
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  17. Fumiko Hayashi & Elizabeth Klee, 2002. "Technology adoption and consumer payments : evidence from survey data," Payments System Research Working Paper PSR WP 02-01, Federal Reserve Bank of Kansas City.
  18. Friestad, Marian & Wright, Peter, 1994. " The Persuasion Knowledge Model: How People Cope with Persuasion Attempts," Journal of Consumer Research, University of Chicago Press, vol. 21(1), pages 1-31, June.
  19. Carow, Kenneth A. & Staten, Michael E., 1999. "Debit, credit, or cash: survey evidence on gasoline purchases," Journal of Economics and Business, Elsevier, vol. 51(5), pages 409-421, September.
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Citations

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Cited by:
  1. Ching, Andrew & Hayashi, Fumiko, 2008. "Payment Card Rewards Programs and Consumer Payment Choice," MPRA Paper 8458, University Library of Munich, Germany.
  2. 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.
  3. 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.
  4. 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.
  5. Wilko Bolt & Sujit Chakravorti, 2010. "Digitization of Retail Payment," DNB Working Papers 270, Netherlands Central Bank, Research Department.

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