Do U.S. Consumers Really Benefit from Payment Card Rewards?

Payment card rewards programs have become increasingly popular in the United States. Nearly all large credit card issuers offer rewards to customers for using their cards, as do more than a third of depository institutions for using debit cards. Recent surveys suggest that many consumers now receive rewards. And rewards are becoming more generous and diversified, ranging from 5 percent cash-back bonuses for gasoline purchases, to free airline miles, to gifts to charity. But do consumers really benefit from rewards? In the United States, rewards are paid for primarily by the fees charged to merchants, and merchants may pass on the fees to consumers as higher retail prices. Further, some regulators and analysts claim that rewards may send consumers distorted price signals, which in turn may lead consumers to choose payment methods that are less efficient to society. Card networks and merchants have taken opposing sides in the rewards debate. Card networks claim their fee structures, including rewards, are crucial to achieving the right balance between merchant acceptance and consumer usage of their cards. Rewards can also reduce the total costs to society by inducing more consumers to switch from