Credit card
Cashback reward programs

Cashback reward programs are incentive programs established by credit card issuers to encourage use of the card. Spending on the card typically awards the card users with points or cash-points that allow the user to redeem to rewards, such as gift cards, statement credits/cash deposited in an account of the card user's choice, or exchanging them to Frequent Flyer programs. Spending that qualifies for these type of points can include/exclude balance transfers, payday loans, or cash advances. Points typically have no cash value until redeemed via the issuer.

Depending on the type of card, rewards will generally cost the issuer between 0.25% and 2.0% of the spread. Networks such as Visa or MasterCard have increased their fees to allow issuers to fund their rewards system. Some issuers discourage redemption by forcing the cardholder to call customer service for rewards. On their servicing website, redeeming awards is usually a feature that is very well hidden by the issuers. Many credit card issuers, particularly those in the United Kingdom, Canada and United States, run these programs to encourage use of the card.

Card holders typically receive between 0.5% and 3% of their net expenditure (purchases minus refunds) as an annual rebate, which is either credited to the credit card account or paid to the card holder separately. Unlike unused gift cards, in whose case the breakage in certain U.S. states goes to the state's treasury, unredeemed credit card points are retained by the issuer.

A 2010 public policy study conducted by the Federal Reserve concluded cash back reward programs result in a monetary transfer from low-income to high-income households. Eliminating cash back reward programs would reduce merchant fees which would in turn reduce consumer prices because retail is such a competitive environment.
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