Electronic Payments Coalition (EPC) released a report today on the value of debit and credit card rewards programs for merchants and consumers across all income levels. The report highlights that the vast majority of consumers own at least one credit card, including nearly two-thirds of adults earning less than $40,000 per year. This report shows that more than 90% of all credit cardholder spending was charged to rewards cards in 2016, and consumer preference for spending on rewards cards versus non-rewards cards holds true across income groups, with lower-income cardholders using their rewards cards for more than 70% of their spending.
The report also shows that rewards cards provide a host of benefits for merchants. Through a phenomenon known as “ticket lift,” where debit and credit card transactions are 2-4 times larger than cash transactions, and, relative to a non-rewards consumer credit card, rewards cards are associated with an average transaction size that is 25-60% higher.
“This report stands in line with what we’ve been saying since the Durbin Amendment was signed into law. The vast majority of consumers across all income levels use credit cards and prefer to use cards with rewards programs because of the value they provide, whether through convenience and security or by earning cash-back, airline miles, or hotel stays,” said Jeffrey A. Tassey, Chairman of the Board of EPC. “Retailers continuously criticize rewards programs for their higher interchange fees, when, in reality, the benefits outweigh the costs through increased sales, lower costs, faster transactions, and prompt and guaranteed payments. In fact, retailers often operate their own in-store rewards programs to drive net spending by incentivizing consumers to participate through lower prices and discounts at the shelves.”
The report also describes the dynamics of a two-sided market where a platform or service serves multiple end-users, which in the case of rewards cards includes cardholders and merchants. EPC found that the value derived from using the electronic payments system depends on the extent to which both groups participate. Ultimately, the price to participate balances the need to attract merchants with the need to increase the number of cardholders.
To view EPC’s Report on the value of rewards, click here.