Payment Card Rewards Programs and Consumer Payment Choice
University of Toronto
Federal Reserve Bank of Kansas City
July 18, 2006
Payments System Research, Federal Reserve Bank of Kansas City
Working Paper 06-02
Preliminary. Please do not cite or quote without permission.
Card payments have been growing very rapidly. To continue the growth, payment card networks keep
adding new merchants and card issuers try to stimulate their existing customers’ card usage by providing
rewards. This paper seeks to analyze the effects of payment card rewards programs on consumer payment
choice, by using consumer survey data. Specifically, we examine whether credit/debit reward receivers
use credit/debit cards relatively more often than other consumers, if so how much more often, and which
payment methods are replaced by reward card payments. Our results suggest that (i) consumers with
credit card rewards use credit cards much more exclusively than those without credit card rewards; (ii)
even among those who carry a credit card balance, consumers with credit card rewards use a credit card
more often than those without rewards; (iii) among consumers who receive credit card rewards, those who
receive credit card rewards as well as debit card rewards tend to use debit cards more often than those
who receive credit card rewards only; and (iv) reward card transactions seem to replace not only paper-
based transactions but also non-reward card transactions.
* Rotman School of Management, University of Toronto, Andrew.Ching@Rotman.Utoronto.Ca.
** Payments System Research, Federal Reserve Bank of Kansas City, email@example.com. The views
expressed in this paper are those of the authors and do not necessarily reflect those of the Federal Reserve Bank of
Kansas City or the Federal Reserve System.
Credit and debit card payments have been growing very rapidly. Debit card outpa