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Payment Card Rewards Programs and Consumer Payment Choice

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  • Ching, Andrew
  • Hayashi, Fumiko

Abstract

We estimate the direct effects of rewards card programs on consumer payment choice for in-store transactions. By using a data set that contains information on consumer perceived attributes of payment methods and consumer perceived acceptance of payment methods by merchants, we control for consumer heterogeneity in preferences and choice sets. We conduct policy experiments to examine the effects of removing rewards from credit and/or debit cards. The results suggest that: (i) only a small percentage of consumers would switch from electronic to paper-based payment methods, (ii) the effect of removing credit card rewards is greater than that of removing debit card rewards, and consequently, (iii) removing rewards on both credit and debit cards would reduce credit card transactions, but increase debit card transactions.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 8458.

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Date of creation: 23 Apr 2008
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Handle: RePEc:pra:mprapa:8458

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Keywords: Consumer Choice; Payment Methods; Rewards Programs; Interchange fees;

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References

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Citations

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Cited by:
  1. Charles Sprenger & Joanna Stavins, 2008. "Credit card debt and payment use," Working Papers 08-2, Federal Reserve Bank of Boston.
  2. von Kalckreuth, Ulf & Schmidt, Tobias & Stix, Helmut, 2011. "Using cash to monitor liquidity: Implications for payments, currency demand and withdrawal behavior," Discussion Paper Series 1: Economic Studies 2011,22, Deutsche Bundesbank, Research Centre.
  3. Zinman, Jonathan, 2009. "Debit or credit?," Journal of Banking & Finance, Elsevier, vol. 33(2), pages 358-366, February.
  4. Carbó-Valverde, Santiago & Liñares-Zegarra, José M., 2011. "How effective are rewards programs in promoting payment card usage? Empirical evidence," Journal of Banking & Finance, Elsevier, vol. 35(12), pages 3275-3291.
  5. Ching, Andrew & Hayashi, Fumiko, 2008. "Payment Card Rewards Programs and Consumer Payment Choice," MPRA Paper 8458, University Library of Munich, Germany.
  6. Humphrey, David B., 2010. "Retail payments: New contributions, empirical results, and unanswered questions," Journal of Banking & Finance, Elsevier, vol. 34(8), pages 1729-1737, August.
  7. Schuh, Scott & Stavins, Joanna, 2010. "Why are (some) consumers (finally) writing fewer checks? The role of payment characteristics," Journal of Banking & Finance, Elsevier, vol. 34(8), pages 1745-1758, August.
  8. Tamás Briglevics & Oz Shy, 2012. "Why don’t most merchants use price discounts to steer consumer payment choice?," Public Policy Discussion Paper 12-9, Federal Reserve Bank of Boston.
  9. 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.
  10. Wilko Bolt & Sujit Chakravorti, 2010. "Digitization of Retail Payment," DNB Working Papers 270, Netherlands Central Bank, Research Department.
  11. 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.
  12. John Simon & Kylie Smith & Tim West, 2009. "Price Incentives and Consumer Payment Behaviour," RBA Research Discussion Papers rdp2009-04, Reserve Bank of Australia.
  13. Sumit Agarwal & Sujit Chakravorti & Anna Lunn, 2010. "Why do banks reward their customers to use their credit cards?," Working Paper Series WP-2010-19, Federal Reserve Bank of Chicago.
  14. 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.
  15. Fumiko Hayashi & Joanna Stavins, 2012. "Effects of credit scores on consumer payment choice," Research Working Paper RWP 12-03, Federal Reserve Bank of Kansas City.
  16. Sergei Koulayev & Marc Rysman & Scott Schuh & Joanna Stavins, 2012. "Explaining adoption and use of payment instruments by U. S. consumers," Working Papers 12-14, Federal Reserve Bank of Boston.
  17. Fumiko Hayashi, 2006. "Pricing and welfare implications of payment card network competition," Payments System Research Working Paper PSR WP 06-03, Federal Reserve Bank of Kansas City.
  18. Fumiko Hayashi & Joanna Stavins, 2012. "Effects of credit scores on consumer payment choice," Public Policy Discussion Paper 12-1, Federal Reserve Bank of Boston.

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