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ABA Report: Credit Card Rewards Provide Value to Consumers of All Income Levels, Merchants

New study shows why so many consumers choose to participate in rewards programs


Credit card rewards are accessible, valuable, and well-understood by consumers across all income levels according to a new report from the American Bankers Association. ABA examined rewards cards and their value to various participants in the credit card market, including merchants and consumers, segmented by income and credit score, and found that most lower-income cardholders use a rewards card and receive significant benefits from rewards programs, as do cardholders with moderate and higher incomes. Today, nearly 84% of open credit card accounts offer rewards.

“Rewards cards are wildly popular among consumers because they are easy to use and provide significant value,” said Kirsten Sutton, executive director of ABA’s Card Policy Council. “The good news is that consumers across all income levels benefit from rewards programs, which have expanded beyond travel points to offer a broader array of rewards options like college savings benefits or extra cash back at the grocery store.”

The analysis also found that small businesses receive significant value from accepting rewards cards because they are associated with higher transaction amounts than cash-based purchases. They also benefit from the improved transaction security, reduced fraud and nonpayment risk, and lower cash-handling costs that accompany electronic payments use.

The study, based on balance-active credit card accounts taken from a nationally representative depersonalized sample of nearly 40 million open accounts, included the following findings:

  • Merchants gain far more from credit card rewards programs than they pay in transaction fees. Through higher purchase values, increased security, lower risks, and avoided costs of cash, merchants benefit substantially from the existence of credit card rewards programs. There is little evidence that merchants pass the costs of card acceptance through to consumers — which is intuitive, given that the benefits of card acceptance outweigh the costs — so lower-income cash and debit users do not subsidize rewards through higher prices.
  • Households of all incomes benefit from rewards cards. Most credit cardholders have active rewards cards, including more than three-quarters of balance-active cardholders with a household income less than $50,000. The Federal Reserve estimates that 84% of credit cardholders have at least one rewards card, and a survey conducted by Phoenix Marketing found that 7 in 10 cardholders earning less than $20,000 have a rewards card. Rewards card ownership is determined primarily by credit score, not income.
  • Most interest is paid by higher-income cardholders. High earners pay a disproportionately high share of interest. For most income groups in the study, the share of monthly interest paid closely aligns with the group’s share of the sample. In fact, where differences exist, they imply that lower-income cardholders pay less than their expected share of monthly interest. For example, cardholders with annual household incomes below $50,000 make up 15% of the sample, but they pay just 13% of total monthly interest. Meanwhile, cardholders earning between $150,000 and $200,000 per year make up 16% of the sample but pay slightly more (18%) in monthly interest. Cardholders who earn more than $75,000 per year comprise 67% cardholders but pay 70% of interest payments.
  • Credit card rewards are not a “wealth transfer.” Some credit card market observers use simplistic or misleading assumptions to argue that rewards programs act as a ‘Reverse Robin Hood’ subsidy from lower-income to wealthy consumers. In reality, credit card reward programs benefit consumers of all incomes as well as merchants who accept credit cards.
  • Income has little bearing on a cardholder’s credit score. The relationship between risk score and income is quite weak, and the majority of lower-income cardholders have good credit scores. According to Verisk data, nearly one-in-four cardholders with household incomes below $50,000 have a super-prime risk score. An additional 35% of cardholders in the sample’s lowest income bracket have prime credit ratings. Similarly, interest rates are comparable within risk tiers regardless of income, suggesting that credit card pricing is based on risk, not income.
  • Revolving balance and behavior are primarily a function of risk, not income. Regardless of income, cardholders with the lowest credit scores are about three times as likely to revolve as those with the highest scores, demonstrating that revolving behavior is tied more closely to risk than income. Risk score is far more important than income in determining whether a consumer revolves credit (and, in doing so, pays monthly interest).

The full report is available here.


About the American Bankers Association

The American Bankers Association is the voice of the nation’s $23.6 trillion banking industry, which is composed of small, regional and large banks that together employ more than 2 million people, safeguard $19.4 trillion in deposits and extend $12 trillion in loans.

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