Are Debit Rewards Back in Vogue?

by Sarah Grotta 0


Rewards on debit card transactions have become less available, watered down, converted to merchant-funded program or promoted within a relationship rewards scheme that also considers other banking transactions and activities.  Larger financial institutions that saw millions in revenue disappear after Dodd-Frank were the first to retract debit rewards.  Smaller institutions that retained full interchange revenue levels were able to continue to offer debit rewards and promote them as a differentiating factor.  With downward pressure on interchange more recently across the board and the expense of managing a debit card portfolio rising, there has been a strain on maintaining rewards for institutions of all sizes.  So it seems an odd time for large banks to be getting back into the debit rewards game, but a few examples have emerged as reported in a PaymentsSource article:

Citigroup Inc. is considering the idea, as well as other types of rewards for checking and savings accounts, to entice customers to sign up for its fledgling online bank, which it began to roll out nationwide earlier this year.

Instead of offering higher rates to attract deposits, Citigroup will work with retailers it already partners with — such as American Airlines Group Inc. — to tailor rewards to existing credit-card customers, encouraging them to open new accounts, Stephen Bird, chief executive officer of Citigroup’s global consumer bank, said at a conference in New York Tuesday.

“They are self-selected members of the American Airlines club and they love miles,” Bird said. “Until now, nobody has said to them, ‘Why don’t you earn those same miles on your checking and savings accounts?’ You’re going to be able to do that.” 

Offering rewards on both credit and debit, and thereby rewarding most of a consumer’s spend can be meaningful.  Discover is offering cash back on both credit and debit cards also.  Will other banks follow?

Overview by Sarah Grotta, Director, Debit and Alternative Products Advisory Service at Mercator Advisory Group

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