Who Pays For Your Rewards? Redistribution in the Credit Card Market (with Sumit Agarwal, Andrea F. Presbitero, and Andre F. Silva) (under review)
We study credit card rewards as an ideal laboratory to quantify redistribution between consumers in retail financial markets. Comparing cards with and without rewards, we find that, regardless of income, sophisticated individuals profit from reward credit cards at the expense of naive consumers. To probe the underlying mechanisms, we exploit bank-initiated account limit increases at the card level and show that reward cards induce more spending, leaving naive consumers with higher unpaid balances. Naive consumers also follow a sub-optimal balance-matching heuristic when repaying their credit cards, incurring higher costs. Banks incentivize the use of reward cards by offering lower interest rates than on comparable cards without rewards. We estimate an aggregate annual redistribution of $15 billion from less to more educated, poorer to richer, and high to low minority areas, widening existing disparities.
Media Coverage: Economist, CNBC (video), Washington Post, New York Times, Politico, Bloomberg (1), Bloomberg (2), FT Alphaville, Wall Street Journal, Vox, Barrons, Motley Fool, View from the Wing, Marginal Revolution
Published As: FEDS Working Paper 2023-007, CEPR Discussion Paper 17733, IMF Working Paper 2023/054
Scheduled At: 2025 EFA (Paris)
Presented At: WFA 2023 (San Francisco), SFS Cavalcade North America 2023 (Austin), FIRS 2022 (Budapest), 2023 Swiss Winter Conference on Financial Intermediation 2023 (Gerzensee), 2022 UBC Winter Finance (Whistler), EEA 2022 (Milan), 2022 CEAR-RSI Household Finance Workshop (Montreal), 2025 Annual Conference Banco Central do Brasil (Brasilia), 2024 Economics of Payments XIII (Vienna), 2024 Georgia Tech – Atlanta Fed Household Finance Conference (Atlanta), IEA World Congress 2023 (Medellin), Federal Reserve/George Washington University Financial Literacy Seminar (Virtual), 2022 SFA (Key West), Fourth Workshop on Payments, Lending, and Innovations in Consumer Finance (Philadelphia), Research in Behavioral Finance Conference 2022 (Amsterdam), 2022 IWFSAS (London), Behavioural Finance Working Group 15th Annual Conference (London), 5th Bristol Banking Workshop (Bristol)
The Long-Run Real Effects of Banking Crises: Firm-Level Investment Dynamics and the Role of Wage Rigidity (under review)
I study the long-run effects of credit market disruptions on real firm outcomes and how these effects depend on nominal wage rigidity at the firm level. Exploiting variation in firms' refinancing needs during the global financial crisis, I trace out firms' investment and growth trajectories in response to a credit supply shock. Financially shocked firms exhibit a temporary investment gap for two years, resulting in a persistent accumulated growth gap six years after the crisis. Shocked firms with rigid wages exhibit a significantly steeper drop in investment and an additional long-run growth gap relative to shocked firms with flexible wages.
Published as: FEDS Working Paper 2023-019
Presented at: EEA 2023 (Barcelona), SEA 89th Annual Meetings, Federal Reserve Board, Universidad Carlos III de Madrid, Bank of Canada, Erasmus University Rotterdam, Bank of Finland, Danmarks Nationalbank, Bank of England, Lancaster University, University of Zurich, Halle Institute of Economic Research, Goethe University Frankfurt, 25th Finance Forum Barcelona
(4) Supranational Rules, National Discretion: Increasing versus Inflating Regulatory Bank Capital?. 2024. Journal of Financial and Quantitative Analysis 59 (2), 830 - 862. (with Reint Gropp, Thomas Mosk, Steven Ongena, and Ines Simac)
(3) The COVID-19 Shock and Consumer Credit: Evidence from Credit Card Data. 2023. Journal of Banking and Finance 152, 106854 (with Akos Horvath and Benjamin Kay)
(2) COVID-19 as a Stress Test: Assessing the Bank Regulatory Framework. 2022. Journal of Financial Stability 61, August 2022, 101016. (with Elizabeth Duncan, Akos Horvath, Diana Iercosan, Bert Loudis, Alice Maddrey, Francis Martinez, Timothy Mooney, Ben Ranish, Ke Wang, and Missaka Warusawitharana)
(1) Banks Response to Higher Capital Requirements: Evidence from a Quasi-Natural Experiment. 2019. Review of Financial Studies 32 (1), 266–299. (with Reint Gropp, Thomas Mosk, and Steven Ongena)
Estimated Quarterly Levels of Bank Lending Standards and Credit Availability, 2025, FEDS Notes. Washington: Board of Governors of the Federal Reserve System, June 06, 2025 (with Jaron Berman and Felicia Ionescu)
The July 2024 Senior Loan Officer Opinion Survey on Bank Lending Practices. 2024. Federal Reserve Board.
The October 2023 Senior Loan Officer Opinion Survey on Bank Lending Practices. 2023. Federal Reserve Board.
Open Board Meeting Memo July 27 on Basel III endgame. 2023. Federal Reserve Board.
Buffer usability and cyclicality in the Basel framework. 2022. Basel Committee on Banking Supervision.
The July 2022 Senior Loan Officer Opinion Survey on Bank Lending Practices. 2022. Federal Reserve Board.
Analyzing the Community Bank Leverage Ratio, 2020, FEDS Notes. Washington: Board of Governors of the Federal Reserve System, May 26, 2020 (with Bert Loudis and Daniel Nguyen)