Why Do Banks Reward Their Customers to Use Their Credit Cards?
National University of Singapore The Clearing House affiliation
not provided to SSRN December 20, 2010 FRB of Chicago Working
Paper No. 2010-19 Using a unique administrative level dataset
from a large and diverse U.S. financial institution, we test the
impact of rewards on credit card spending and debt.
Specifically, we study the impact of cash-back rewards on
individuals before and during their enrollment in the program.
We find that with an average cash-back reward of $25, spending
and debt increases by $79 and $191 a month, respectively during
the first quarter. Furthermore, we find that cardholders who do
not use their card prior to the cash-back program increase their
spending and debt more than cardholders with debt prior to the
cash-back program. In addition, we find that 11 percent of
cardholders that did not use their cards in the previous 3
months prior to the cash-back program spent at least $50 in the
first month of the program. Finall