ATM&Debit News
Though several large issuers offer rewards programs tied to debit cards, growth in the segment appears to have tape red off, at least for now.
A recent survey by Dove Consulting Inc., a division of Hitachi Consulting, said 37% of issuers now support debit card reward programs, compared with 36% a year earlier.
However, card companies and industry analysts say that such rewards programs are building blocks needed to secure customer loyalty, and they predict that more banking companies will offer rewards in coming years. The survey backed this up, finding that 20% of debit card issuers that do not support a rewards program say they are considering offering one. The survey was commissioned by Pulse EFT Association, the debit network owned by Morgan Stanley.
"We're continuing to see issuers participate in debit rewards," said Nancy Krattli, Visa U.S.A.'s vice president of consumer debit products. "Fourteen out of our top 15 issuers have a reward product for their debit card."
Large issuers have embraced debit rewards to a much greater extent than small ones; the Dove survey found that 68% of large banks offer a rewards program tied to debit cards. Tony Hayes, the head of Dove's financial services practice, said that when large banks take the lead in initiating products or services, small ones tend to follow suit.
However, other observers said that debit rewards programs face obstacles, notably that people will not embrace them to the extent they have credit card rewards, and that issuers can attract customers without such programs.
"This is not necessarily something [issuers] have to do to retain customers and to grow debit transaction volumes," said Bruce Cundiff, a senior analyst at Javelin Strategy and Research in Pleasanton, Calif.
Indeed, though many banks are benefitting from their debit rewards efforts, the programs themselves "don't build relationships" with consumers, according to Jim Marous, the director of business development at Alcott Routon, a Franklin, Tenn., marketing firm. For rewards to genuinely build customer loyalty, they should be used to encourage people not only to open accounts but also to increase their deposits in these accounts, he said.
Mr. Marous said some issuers have been reluctant to launch rewards programs because of their cost; these companies need to be persuaded, he said, that the cost of adopting, promoting, and running rewards programs can be recovered through higher transaction volumes and larger account balances.
Visa's Ms. Krattli said that participants in debit card rewards programs conduct, on average, 3.4 more transactions per month and spend, on average, $128 more per month, than those not enrolled. The share of all Visa debit cardholders participating in rewards programs grew to 12% last year, from 2% in 2002.
Trish Preston, MasterCard Inc.'s senior vice president of American debit product management and development, said issuers need to demonstrate the business case for adopting rewards programs. One way to do this, she said, is to combine various reward products into one, which could seem more rewarding to customers. For example, an issuer might want to merge its debit and credit rewards into a single program, she said.
The more that consumers embrace reward initiatives, she said, the more they are likely to feel loyalty to the issuing bank.
Though Mr. Hayes said that Dove's survey found interest among many financial companies in adding debit rewards, some were hesitant because of the programs' long-term nature. "Once you introduce it, you are pretty well stuck with it forever," he said.
This is why some issuers test debit rewards programs specifically to ensure that they boost customer loyalty, transaction volume, and account balances.
Mr. Cundiff, the Javelin analyst, said that interchange rates remain an issue. Visa and MasterCard credit cards with rewards programs typically charge higher rates than cards without such programs. But interchange rates for debit cards are the same whether the card has a rewards program or not.
Still, as the survey suggested, banks are likely to add rewards programs to attract customers, though it might take a while for debit rewards programs to become common.
