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Payment Card Rewards Programs and Consumer Payment Choice

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Author Info
Ching, Andrew
Hayashi, Fumiko

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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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File URL: http://mpra.ub.uni-muenchen.de/8458/
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Publisher 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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Related research
Keywords: Consumer Choice Payment Methods Rewards Programs Interchange fees

Other versions of this item:

Find related papers by JEL classification:
M31 - Business Administration and Business Economics; Marketing; Accounting - - Marketing and Advertising - - - Marketing
D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
C35 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Discrete Regression and Qualitative Choice Models

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Gene Amromin & Carrie Jankowski & Richard D. Porter, 2005. "Transforming payment choices by doubling fees on the Illinois Tollway," Conference Series ; [Proceedings], Federal Reserve Bank of Boston. [Downloadable!]
  2. Nicole Jonker, 2005. "Payment Instruments as Perceived by Consumers - a Public Survey," DNB Working Papers 053, Netherlands Central Bank, Research Department. [Downloadable!]
  3. Humphrey, David B & Kim, Moshe & Vale, Bent, 2001. "Realizing the Gains from Electronic Payments: Costs, Pricing, and Payment Choice," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 33(2), pages 216-34, May.
    Other versions:
  4. Mark Armstrong Author-Email: mark.armstrong@ucl.ac.uk, 2006. "Competition in Two-Sided Markets," RAND Journal of Economics, The RAND Corporation, vol. 37(3), pages 668-691, Autumn.
    Other versions:
  5. Carol C. Bertaut & Michael Haliassos, 2001. "Debt Revolvers for Self Control," University of Cyprus Working Papers in Economics 0208, University of Cyprus Department of Economics. [Downloadable!]
  6. Ausubel, Lawrence M, 1991. "The Failure of Competition in the Credit Card Market," American Economic Review, American Economic Association, vol. 81(1), pages 50-81, March.
  7. Ron Borzekowski & Elizabeth K. Kiser & Shaista Ahmed, 2006. "Consumers' use of debit cards: patterns, preferences, and price response," Finance and Economics Discussion Series 2006-16, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
    Other versions:
  8. Jonathan Zinman, 2004. "Why use debit instead of credit? Consumer choice in a trillion-dollar market," Staff Reports 191, Federal Reserve Bank of New York. [Downloadable!]
  9. Ron Borzekowski & Elizabeth K. Kiser, 2006. "The choice at the checkout: quantifying demand across payment instruments," Finance and Economics Discussion Series 2006-17, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
    Other versions:
  10. Hirschman, Elizabeth C, 1982. "Consumer Payment Systems: The Relationship of Attribute Structure to Preference and Usage," Journal of Business, University of Chicago Press, vol. 55(4), pages 531-45, October. [Downloadable!] (restricted)
  11. Fumiko Hayashi & Elizabeth Klee, 2003. "Technology Adoption and Consumer Payments: Evidence from Survey Data," Review of Network Economics, Concept Economics, vol. 2(2), pages 175-190, June. [Downloadable!]
  12. Elizabeth Klee, 2006. "Paper or plastic? the effect of time on the use of check and debit cards at grocery stores," Finance and Economics Discussion Series 2006-02, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  13. Terri Bradford, 2008. "Developments in interchange fees in the United States and abroad," Payments System Research Briefing, Federal Reserve Bank of Kansas City, issue April 200. [Downloadable!]
  14. Brian Mantel, 2000. "Why do consumers pay bills electronically? an empirical analysis," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q IV, pages 32-48. [Downloadable!]
  15. Elizabeth Klee, 2006. "Families' use of payment instruments during a decade of change in the U.S. payment system," Finance and Economics Discussion Series 2006-01, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  16. Daniel D. Garcia-Swartz & Robert W. Hahn & Anne Layne-Farrar, 2006. "The Move Toward a Cashless Society: Calculating the Costs and Benefits," Review of Network Economics, Concept Economics, vol. 5(2), pages 199-228, June. [Downloadable!]
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Charles Sprenger & Joanna Stavins, 2008. "Credit card debt and payment use," Working Papers 08-2, Federal Reserve Bank of Boston. [Downloadable!]
  2. 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. [Downloadable!]
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