American Savings Links Free Miles to Debit Card

American Savings Bank of Stockton, Calif., has become one of the first banks to introduce a frequent-flier program linked to its debit card.

Similar to programs recently launched by some credit card companies, American Savings' Mileage Checking offers customers one mile for every dollar spent using the Visa Gold check card.

"There has been very little innovation in the checking account business for years," said Brent Robinson, executive vice president and director of retail banking. "It's difficult to differentiate yourself."

Anne M. Moore, president of Atlanta-based Synergistics Research Corp., sees the rebate trend migrating from credit to debit cards.

While this is the only frequent-flier debit program she knows of, other banks have employed discounts and promotions to encourage automated teller machine card use at the point of sale.

"Reward marketing helps a provider distinguish itself from the competition, attract new customers, retain current ones, and cement relationships," said Ms. Moore.

Mileage Checking requires a $300 opening balance. While there is no annual fee, $6 is charged monthly, regardless of balance.

Customers who sign up will get 5,000 free miles and must accumulate 25,000 points within five years to earn a free ticket worth up to $500, purchased through Mileage Checking Travel Co.

Transactions that go through the Visa payment system will be counted in the program but not checks or ATM transactions.

Although the $17 billion-asset bank has 300,000 checking accounts, Mr. Robinson said it would not automatically convert existing customers. The program is intended to draw new accounts.

He cited consumer focus groups the bank conducted that revealed customers rarely change banks, even if they are dissatisfied with the service. Still, more than 80% of consumers in the groups said they would switch to get free miles.

The banking subsidiaries of such companies as Citicorp, First Chicago Corp., First of America Bank Corp., Star Bank Corp., and Banc One Corp. have launched frequent-flier programs linked to credit cards. But American Savings sold its portfolio to General Electric Capital Corp. more than a year ago.

While the thrift will not earn the interest income that credit card companies count on for profits from these types of programs, Mr. Robinson said, revenue sources include merchant discount fees that average about 1.25% of the sale, monthly service fees, and overdraft and other standard checking account charges.

"Once we have the checking account," he added, "there is a higher probability of selling car loans, home loans, certificates of deposit, and credit cards."

The program also offers bonus miles for monthly balances over $2,500 but pays no interest on those balances.

Ms. Moore pointed out that it is considerably less expensive to process debit card payments than paper checks and the move is part of a greater trend to wean the public from cash and checks, converting more payments to plastic.

For every rebate program, a bank generally anticipates an average of 50% of its accounts to cash in the points, Mr. Robinson said.

American Savings' debit campaign will be heavily marketed to the California public through billboard, radio, and full-page newspaper advertisements.

Mr. Robinson said that, while the program stands alone for now, he expects other banks to follow his lead, although he added, "I hope they don't."

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