Magazine article American Banker

Debit Card Rewards, Act 2

Magazine article American Banker

Debit Card Rewards, Act 2

Article excerpt

By Bill Hanifin

Debit card rewards programs hit the market with a flurry several years ago, but their already precarious business case was shattered by the merchant litigation against the card associations.

Though some in the industry have written off these rewards programs for good, there is clearly a second act to be played out.

In recent years card associations came to grips with the reality that success was tied to increased expenditure, not just the number of cards. With cash and checks firmly in their sights, bank marketers identified the debit card as the instrument most likely to shift everyday consumer spending to a payment system network.

Right at the start of the millennium, debit card acceptance by consumers increased dramatically. But issuers quickly focused on an anomaly unique to the debit card: the higher interchange fee structure of signature debit. So the hunt for heavy users of signature debit was on.

For many years credit card marketers relied on rewards programs to drive card use. Today consumers feel a sense of entitlement about such programs, and some marketers believe rewards essentially a cost of entry to the business.

Card marketers are seemingly creatures of habit, so it wasn't surprising that the flood of debit rewards programs in 2001 and 2002 left something to be desired. Most marketers had simply carbon-copied the traditional point- or mile-per-dollar structure they had developed in the credit rewards business over the years.

As rapidly as these programs were hatched, two problems became evident.

First, the business case for a stand-alone rewards program on debit was extremely thin. If most credit programs found their funding ceiling near 1%, debit card programs typically capped out at mere basis points.

As my firm works with clients to complete a loyalty program design, we routinely evaluate intended impact from the cardholder perspective. …

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