The value of credit card benefits
DOI:
https://doi.org/10.61190/fsr.v19i3.4976Keywords:
Frequent flier miles, Credit cardsAbstract
Banks offer various economic incentives to customers to pay with their credit card rather than cash. Still, many individuals either elect to pay with cash or are unable to acquire credit cards. What benefits do these people lose by paying in cash rather than credit card? This paper demonstrates two opportunity costs associated with cash payments-frequent flier miles and payment float. Under most scenarios, the opportunity cost of cash payments versus benefit accruing credit cards is large. For example, individuals or businesses charging $5,000 each month can realize a present value opportu nity cost of more than $19,000 over a five-year horizon. The results help banks optimize their offerings and individuals optimize their payment patterns.
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