برنامه های پاداش ها در ترویج استفاده از کارت پرداخت چه حد مؤثر است؟ شواهد تجربی

Card issuers have mainly relied on rewards programs as their main strategy to increase usage. However, there is scarce evidence on the effectiveness of these programs. This paper is addressing two topics which could have important managerial and public policy implications: (i) it estimates the impact of rewards on the use of cards and (ii) it quantifies their economic effects in terms of the cash substitution. We find that rewards may significantly modify choice for card payments. Their economic impact also varies significantly across types of rewards and merchant activities. Additionally, rewards seem to be more effective for debit cards.

In recent years, some studies have highlighted the cost and convenience benefits of using retail electronic payments and, in particular, card payment instruments.1 However, in most developed countries consumers keep using cash and other paper-based payment instruments. Card issuers have incurred substantial costs to launch incentive programs (a price-related variable2) to stimulate payments with debit and credit cards, presumably assuming that these rewards would significantly increase the use of these cards based on standard comparisons.3 However, card issuers are facing a great uncertainty on how to allocate the resources to make the incentive programs as effective as desired. On a microeconomic basis, little is known on how to encourage consumers to increase the use of debit and credit cards. Thus, analyzing how rewards programs affect consumers’ choices4 for payment instruments has become a key strategic question in the financial industry.5 Understanding the impact of rewards in the payment card industry is a hotly debated topic right now. For example, the US Congress is investigating how this type of marketing incentives would affect not only payment choice, but also the interchange fee, which is basically charged to merchants. The proponents argue that this would be an effective tool in switching consumers from cash to electronic form of payments (and many people believe that this is a cheaper way for the economy to process payments). However, the opponents argue that the payment card industry is fairly mature now, and hence rewards are mainly being used for competing market shares between card issuers, instead of getting more people to use payment cards. This limited knowledge is, at least partially, due to the lack of comprehensive microeconomic data on consumers’ choices towards payment instruments and on the related role of incentive-related mechanisms.6 Although the literature on consumer payment choice has evolved recently, studies that incorporate “price” or reward information are still scarce. There are three papers, including this one, examining the effects of payment card rewards on consumer choice of payment instruments. Since each paper analyzes a different market (the US in Ching and Hayashi, 2010; Australia in Simon et al. (2010); and Spain in this paper), the three papers complement each other7 and have policy implications. In particular, the regulations that aim to reduce the fees that merchants’ banks pay to issuers’ bank (interchange fees) may have implications on the quantity and quality of rewards. Some argue that reducing interchange fees and rewards enhances efficiency in payment systems because rewards are used to entice consumers to use payment methods that are more costly to society (credit cards are more costly than debit cards). Others argue that reducing rewards deteriorates efficiency because it makes consumers use more costly payment instruments, such as cash, rather than less costly payment cards. The main goal of this paper is to examine empirically both the effects of incentive programs on payment choice and the impact on the substitution of cash by cards. The contributions of this study are twofold: (i) this is the first empirical study considering different types of rewards to estimate the relative impact of these rewards on the choice for cards relative to cash; (ii) it offers an estimation of the aggregate economic impact of reward programs on the use of cards across merchant activities. In order to address these goals, this paper uses unique survey data to investigate how incentive programs change cardholder choice combining demand and comprehensive information on rewards programs across different merchant activities. The structure of the paper is as follows. Section 2 explains the main theoretical and empirical contributions on the role of rewards programs and, in particular, the relevance of these programs in the payment cards market. Section 2 also addresses the main hypothesis of this study. Section 3 explores de model specification and data. In Section 4, we estimate binomial logit models in order to explain card (vs. cash) usage for eight different types of merchant activities. In Section 5, we offer simulations on the expected shifts from cash to cards by cardholders when incentive programs are applied, using the main estimates of logit models as an input. These simulations help us evaluate the economic impact of the rewards programs. The paper ends with a brief summary of the main conclusions in Section 6.

The substitution of cash by card (and other electronic) payments represent one of the main goals of both economic planners and financial industry participants since this transition may imply significant private and social benefits. From a card issuer perspective, the main strategic way to promote the use of cards is to offer rewards programs. However, little is known on the effectiveness of these programs in promoting card usage relative to paper-based payment instruments. This paper offers novel evidence on the impact of card rewards programs on the choice for the use of cards relative to cash. To undertake this analysis, we perform several empirical tests using a unique survey of consumers’ preferences for payment instruments in Spain. We isolate the effect of rewards from the usual set of demographic and behavioral variables employed in most previous studies. As far as the demographic and behavioral characteristics are concerned, our results are mostly in line with the existing literature. However, we show that rewards programs can also significantly affect the choice for cards relative to cash payments and that the marginal effect of these programs is higher among the posited set of explanatory factors. Importantly, the effects of these rewards vary significantly among merchant sectors. Our results also show that the impact of rewards on card usage is higher for debit cardholders that for credit cardholders. This is because card usage by debit cardholders has a higher potential growth (market is not enough mature). In contrast to the results of Ching and Hayashi, 2010 and Simon et al., 2010 our paper shows that debit card rewards are more substantial than credit card rewards in Spain. A potential explanation is that credit cardholders are less sensitive to intensity of rewards due to a higher rate of adoption that may be also related to other reasons such as the possibility of differing payments or using revolving facilities. Our results may have important implications for both policymakers and card issuers. The former will have to have a closer look at the structure of incentives in the payment industry and the path of substitution of cash by card payments assigning the proper weights to demographic, business and behavioral factors to accurately develop new policies to increase the rate of substitution of cash by cards which, in many countries, is being slower than expected. At the same time, the large expenses that card issuers undertake on incentive programs need to be confronted with the effectiveness of the different rewards programs on card usage (relative to cash) across merchant activities. Therefore, more research is needed on the evaluation of the effectiveness of rewards programs and on the proper way to stimulate card payments from both the public and the private side.