As financial institutions continue to cut debit card reward programs, new research suggests consumers spend more per month when they have an incentive to do so.
In its quarterly Debit Report released July 29, Auriemma Consulting Group suggests banks should take cardholders’ spending patterns into account when considering the long-terms impact of the Federal Reserve’s debit-interchange rate cuts that take effect Oct. 1.
Under the Fed rule, new interchange caps will reduce the amount issuers earn from debit card purchases to about 24 cents per transaction from the current average of 44 cents (
Consumers spend almost $200 more per month while enrolled in a debit reward program, Auriemma’s research found. In a typical month, some 35% of consumers enrolled in a rewards program spend an average of $551 monthly compared with others who spend an average of $370 per month, according to Auriemma, which based the findings for its quarterly report on a base of 505 consumers it surveyed online in June.
Some issuers have discussed possibly adding debit card fees to make up for reduced interchange revenue. But only 9% of consumers who responded to Auriemma’s survey reported paying fees for debit card use.
“What we’ve seen in our data is that the least impactful action is to reduce or eliminate rewards, though it could affect spending,” Bob Taglin, an Auriemma managing consultant, tells PaymentsSource.
Respondents generally do not react favorably to questions about annual and monthly checking-account and debit card fees.
Asked how they would react if their bank added a $50 annual fee to use a checking account and debit card, 49% of respondents in Auriemma’s second quarter survey said they immediately would look for another bank with a lower fee or no fee and move their account. A $30 annual fee appears to be the threshold for respondents to stay with their bank, the report notes.
“Once debit cardholders realize [debit] is the only game in town and want to continue to use it, they will likely have to pay something no matter where they go,” Taglin says.
It may take at least until the end of the year to see how consumers respond to changes banks make under the new debit-interchange rule, he believes.
Debit remains the preferred payment method for consumers. Respondents to Auriemma’s survey said they do nearly 45% of their spending using a debit or ATM card. The said they used cash or checks 28% of the time and credit cards for 21% of their purchases.
Overall, respondents used debit cards more than twice as much as credit cards in all categories, including grocery stores, drug stores, department stores and movie tickets, according to the report. The one exception is large purchases, where they used credit cards about twice as often (45%) as they do debit cards (23%).
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