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

Author

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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.

Suggested Citation

  • Carbó Valverde Santiago & Liñares-Zegarra José Manuel, 2009. "How Effective Are Rewards Programs in Promoting Payment Card Usage? Empirical Evidence," Working Papers 201059, Fundacion BBVA / BBVA Foundation.
  • Handle: RePEc:fbb:wpaper:201059
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    Cited by:

    1. Ching, Andrew T. & Hayashi, Fumiko, 2010. "Payment card rewards programs and consumer payment choice," Journal of Banking & Finance, Elsevier, vol. 34(8), pages 1773-1787, August.
    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. Wilko Bolt & Sujit Chakravorti, 2010. "Digitization of Retail Payment," DNB Working Papers 270, 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. 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.

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    More about this item

    Keywords

    Payment cards; rewards; preferences; merchants; cardholders.;
    All these keywords.

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money

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