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

  • Carbó Valverde Santiago

    ()

    (UNIVERSITY OF GRANADA FEDERAL RESERVE BANK OF CHICAGO)

  • Liñares-Zegarra José Manuel

    ()

    (UNIVERSITY OF GRANADA FEDERAL RESERVE BANK OF CHICAGO)

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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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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