برنامه های پاداش های کارت پرداخت و انتخاب پرداخت مصرف کننده

By using a unique data set that contains detailed information about consumer payment choice and consumers’ attitudes toward each payment method, we estimate the effects of payment card rewards on consumer choice of payment methods. Our approach allows us to control for consumer heterogeneity. We find the effects of rewards to be statistically significant across five retail types. Our policy experiments suggest that for the sub-population who hold both credit and debit cards, removing rewards would increase their share of paper-based payment methods (i.e., cash and checks), measured in terms of in-store transactions, by no more than 4 percentage points.

Credit and debit card payments have been growing rapidly. To continue the growth, payment card networks keep adding new merchants to their networks. But adding new cardholders is becoming more difficult because most consumers in the United States already have both credit and debit cards.1 To increase their market shares and card usage by existing customers, US card issuers have been offering attractive rewards programs. Since launching the new rewards programs, many issuers have seen increases in spending on both credit and debit cards.2 However, we know little about the sources of these increases. It is unlikely that rewards card users simply increase their spending on their credit and debit cards without changing their spending habits involving other payment methods. Which payment methods are mainly replaced by rewards credit and debit cards? To what extent do rewards card transactions replace other forms of payment transactions, such as cash and check transactions? The answers to these questions are important for the debate about the welfare consequences of payment card rewards. On the one hand, the proponents argue that rewards can reduce total costs to the economy by inducing consumers to switch from a more costly payment method, such as checks, to a less costly payment method, such as credit and debit cards.3 Rewards may also increase the gross benefits of merchants and card issuers by increasing the total number/value of transactions. The proponents also believe that consumers would benefit from rewards. On the other hand, the opponents argue that rewards may not reduce the costs of the payment system if most consumers simply substitute rewards credit (debit) card transactions for non-rewards credit (debit) card transactions. In addition, the society would need to incur additional costs to maintain rewards programs. Rewards may also lead to distorted price signals to consumers, and cause some consumers to choose socially less efficient payment methods (Simon, 2005). Merchants may not benefit from rewards if they hardly increase the number/value of transactions. Moreover, rewards may lead to higher card transaction fees to merchants, which may cause higher prices for their goods and services. As a result, consumers, especially those who do not use rewards cards, could be hurt by the higher retail prices. The above debate has important public policy implications on the current fee structure of payment cards. A typical fee structure for a credit or debit card transaction requires a merchant to pay a merchant discount fee to its acquirer, who processes card transactions for the merchant. The major part of the merchant discount fee is transferred from acquirers to card issuers (the fee is called interchange fee in some card networks, such as MasterCard and Visa). The fees received by card issuers from the merchants can be used to provide rewards in some countries, including the United States, while regulations in other countries require the merchant discount fee (or the interchange fee) to be set based on the cost-based benchmark that excludes the cost of providing rewards.4 Consequently, rewards values have become significantly lower in some of these countries (e.g., Australia). Nevertheless, with scant empirical evidence on the effects of rewards, it is not clear whether these fee regulations are appropriate for them, and whether other countries should follow suit.5 Understanding the effects of rewards on payment choice could also help evaluate another possible policy that allows merchants to set surcharges that differ across any particular credit or debit cards. It is conceivable that surcharges set by merchants could neutralize the incentive generated by rewards on payment choice. The welfare consequences of rewards programs and their implications on these public policies crucially depend on both the social costs of various payment methods and how rewards programs affect consumers’ choice of payment methods.6 Our paper will focus on the latter—providing empirical evidence on how rewards programs influence consumer payment choice. To the best of our knowledge, this is the first study that empirically examines this research question.7 We exploit a unique consumer survey data set and estimate a series of multinomial logit models that explain how the following consumer characteristics are related to the payment choice across retail types: demographics, income, technology adoption, and most importantly, whether the consumer receives rewards on credit/debit cards. By using the parameter estimates, we conduct policy experiments to quantify the effects of removing reward features from payment cards on consumer payment choice. As discussed above, our policy experiments would allow us to shed light on the current policy debates, such as whether to regulate the payment card fee structure and whether to allow merchants to set surcharges. Our unique data set allows us to alleviate two problems when estimating the direct effects of rewards programs. 8 The first problem is that deciding whether to obtain rewards payment cards could be endogenous. It is likely that a typical consumer who chooses to obtain a rewards credit/debit card would use this payment method relatively more often, regardless of whether it offers rewards. To handle this problem, we adopt the approach proposed by Harris and Keane (1999), who used attitudinal data to control for unobserved consumer heterogeneity. Our data set provides detailed measures of individual perceptions toward each payment method. We use these measures to control for unobserved consumer heterogeneity in preferences for various payment methods. The second problem is that some consumers may perceive that only a subset of payment methods is available to them at a given retail store, and thus, the choice set of payment methods may vary across consumers. Ignoring the variation of choice sets could lead to biased estimates of the parameters (e.g., Goeree, 2008 and Ching et al., 2009). Previous literature has used panel data and made strong assumptions about the process of choice set formation in order to take choice set heterogeneity into account (e.g., Bronnenberg and Vanhonacker, 1996 and Mehta et al., 2003). In contrast, our data set, which provides information on each consumer’s perceived payment methods accepted by retail type, allows us to control choice set variation without taking this path. Our results indicate that including attitudinal data (i.e., consumer perceived payment method attributes) produces a substantial improvement in model fit and interpretation of estimated parameters, particularly the effects of rewards programs. We find that the estimated coefficients are very similar whether we allow consumer choice set to vary by individual or not—this indicates the robustness of our results. The results from the policy experiments of removing rewards suggest that the majority of consumers who currently receive rewards on credit and/or debit cards would continue to use those payment methods even if rewards were no longer offered. For consumers who hold both credit and debit cards, we find that the share of paper-based payment methods for this sub-population would increase by no more than 4 percentage points, while the share of credit (debit) cards would decrease (increase). The rest of the paper is organized as follows. Section 2 provides some background on the US payment card rewards programs and literature review. Section 3 describes the data set. Section 4 discusses the empirical model. Section 5 presents the results and discusses their implications. Section 6 concludes the paper.

This paper estimates the direct effect of credit and debit card rewards on consumer choice of payment methods. By using a unique data set that contains rich information on consumer payments, such as consumer perceived attributes of each payment method and consumer perceived payment method acceptance by each type of retail stores, we are able to control for the consumer heterogeneity in preferences and choice sets. We find the effects of rewards to be statistically significant. Our policy experiments suggest that for the sub-population who hold both credit and debit cards, removing rewards would increase their share of paper-based payment methods, measured in terms of in-store transactions, by no more than 4 percentage points. Our results show that including perceived payment method attributes produces a substantial improvement in model fit and allows us to alleviate the endogeneity problem of rewards. This suggests that when conducting future surveys to study consumer payment choice, it is important to collect this type of data in order to lessen the potential omitted variable bias. We provide the first effort to understand how rewards affect consumer payment choice. Although we believe that our paper provides some useful information for the current policy debate on the payment industry, there are still many unanswered questions due to data limitations. Collecting more information on rewards programs is crucial to further improve our understanding about how rewards affect consumer payment choice. Knowing the nature of rewards (e.g., Carbó-Valverde and Liñares-Zegarra, 2009), the reward earning and redemption rates (e.g., the percentage of cash rebate, the number of points required for exchange an air-ticket and the average costs of the ticket, etc.) could help us calculate the rewards elasticity of payment choice. It is also vital to collect more detailed information about consumer payment adoption and usage, e.g., the number of rewards cards each consumer holds, the number of transactions he makes with each of his cards, the average number of transactions he makes by retail type, the average values of transactions he makes at each retail type, etc. The additional information outlined here could help address the limitations of the existing studies of this topic. Another limitation of our study is that our sample only includes consumers who hold both credit and debit cards and we only examine their payment choices for in-store transactions. How does removing rewards affect consumers who only hold either debit or credit cards (but not both)? How would the market shares of payment methods change if rewards on payment cards are no longer offered? We leave these important questions for future research.