On particularly harried days, debit card marketers may feel a little like circus ringmasters. No, they do not have to train debit cards to jump through flaming hoops, but they do have to put on a performance that alerts the public to the advantages debit cards offer.
The card associations and issuers all are doing what they can to promote debit cards, particularly as replacements for cash and checks. But challenges remain, particularly convincing older shoppers to switch to plastic. And though experts dispute whether the growth in debit card use is cannibalizing
credit card activity, credit card issuers would be well advised to monitor transaction trends closely.
In their role, the card associations have focused on providing clever visual marketing designed to promote the benefits of their branded debit cards.
During the Super Bowl in February, for example, MasterCard Worldwide debuted a television commercial using its "Priceless" theme and featuring actor Richard Dean Anderson in a return to his title role from the MacGyver TV action series. The commercial's purpose was to show that debit cards make sense for small, everyday purchases.
As the commercial opens, the audience sees MacGyver bound to a chair. As the star manipulates a miniature pine tree to slice through the ropes behind his back, the voiceover says, "Air freshener ... $1.29." MacGyver breaks a window and uses a sock to suspend himself from a cable and slide safely to the ground. "Tube sock ... $4," intones the narrator. Our hero then commandeers a truck with the aid of a bunch of props. "Paper clip, ballpoint pen, rubber band, tweezers, nasal spray and turkey baster ... $14." He drives the truck through a gate, leaving the compound just before an explosion blows the place sky high. "The little things that get you through the day ... priceless," says the voiceover.
Another recent MasterCard commercial also uses the "Priceless" theme to urge shoppers to pay with debit cards for everyday spending. The ad features a dinner attended by cartoon characters who promote food, including Charlie the Tuna, Mr. Peanut, the Pillsbury Dough Boy, the Jolly Green Giant and others.
Between the diners' wisecracks, such as Charlie the Tuna claiming he's "stuffed to the gills," the voiceover mentions "broccoli ... $1.79, tuna ...$3.59 and crescent rolls ... $2.39." The payoff: "Getting everyone together for dinner ... priceless." The spot ends with the reminder that debit MasterCard is "accepted at your favorite supermarket."
MasterCard hopes the ads teach consumers how to use debit cards and thus increase card use, says Fran Dale, president of Entandem, a Sterling, Va.-based card consulting firm. She points out that marketers need not expend resources to convince the public to acquire debit cards, which most large banks provide almost automatically when a customer opens a checking account.
The MasterCard ads also play to consumers' tendencies to use debit cards for small purchases and credit cards for larger purchases, says Trish Preston, MasterCard senior vice president, Americas debit, product management and development.
That division of spending on debit and credit cards can help consumers stay within their budgets, according to Brian Riley, a Florida-based senior analyst for Needham, Mass.-based TowerGroup, MasterCard's consultancy unit. He gives the example of two trips to The Home Depot, one where the shopper uses a debit card to buy an inexpensive hammer and the other where he uses a credit card to buy a high-ticket hot water heater.
BUCKET SPENDING
Combining debit and credit cards that way to manage, or "bucket," spending comes naturally to younger Americans on tighter budgets because they have been early adopters of debit cards, says Megan Bramlette, an associate at Auriemma Consulting Group in Westbury, N.Y.
Still, not everyone is convinced. "I wouldn't say that consumers are moving toward bucketing," says Stacey Pinkerd, Visa USA senior vice president for debit and prepaid products. Pinkerd contends consumers use debit cards, cash or checks for 85% of their payments. That has not changed, except for the fact that the debit card share of those payments is growing, he says.
Instead of everyday spend, Visa's latest round of TV advertising has focused on emerging card markets targeting check use, such as online bill payment. One Visa commercial opens with a simple cartoon showing a break-dancing worm being menaced by a predatory bird. The camera pulls away and viewers see that the cartoon is a flipbook, a series of sketches drawn on a checkbook with the pages flipped quickly to create the animated effect.
"Put your checkbook to a better use," says the narrator. "With a Visa check card you can pay bills like phone, cable and utilities online or by phone. You may never write a check again."
Visa may have created the ad to reach consumers who still shy away from using debit cards online even though issuers and the associations assure them they have no liability for unauthorized use. Bill Hanifin, director of customer growth for Colloquy, a Milford, Ohio-based marketing-consulting firm, says a reluctant shopper might put it this way: "If I use a debit card, they could sweep my checking-account balance, and I'll have a heck of a time recovering it."
Trepidation aside, debit card marketers emphasize that the checking accounts tied to debit cards represent the core of the banking relationship for consumers. That is why observers generally say banks are working hard to convince customers to view their debit cards and checking accounts as part of a suite of banking products and services. The suite could include debit cards, credit cards, certificates of deposit, home mortgages, home equity loans, home equity lines of credit and investments.
Most in the card industry credit Citibank with getting an early start on relationship marketing more than two years ago by tying such products and services together in its ThankYou Network rewards program.
The program awards points for banking in two ways, says Paul Kadin, marketing director for Citibank North America. First, members accrue points monthly simply for having accounts and, second, they earn additional points for using their credit and debit cards, he says.
ThankYou participants also receive as many as five points per dollar spent with participating merchants. The list of those retailers includes RadioShack, Best Buy, Blockbuster, Lands' End, H&R Block, Hollywood Video, Sharper Image, Barnes & Noble, BabyGap and Vermont Teddy Bear Co. Merchants contribute to the points to bring in customers, analysts say.
Citibank promotions also offer bonus ThankYou Points as part of a dedicated marketing campaign that has made the program a brand, Kadin says. He also notes that whatever the source of their points, members can redeem them for customized rewards.
The ThankYou Network has succeeded, contends Kadin. He says customers enrolled in the program opt to use an average of 20% more of the bank's products, they tend to use the products more, their profitability is higher and their attrition is 20% lower.
"All the metrics that are important to us have been enhanced by this program," Kadin concludes.
REWARD DIFFERENCES
ThankYou has been at the forefront of a rush to offer rewards tied to debit card use in the last two years. Issuers have been slow to offer debit card rewards programs because debit cards are less profitable than credit cards. Credit cards charge interest on unpaid balances, impose more fees and have higher interchange rates, analysts say.
While credit card reward programs often offer a point per dollar spent, consumers typically receive as little as a quarter of a point per dollar they spend in debit card reward programs, says Hanifin of Colloquy.
Still, about 36% of issuers reward for debit card use, and most of MasterCard's top 10 issuing banks will join the movement by the end of the year, says Laura G. Kelly, MasterCard senior vice president of global debit programs.
Nine of the top 10 Visa check card issuers are offering rewards, according to Nancy Sabol, Visa vice president of consumer debit products.
Debit card issuers are embracing rewards because they work, industry players say. "It's about a 30% increase in usage when a card has a rewards feature associated," says Sabol. Case studies indicate debit rewards increase the average sale by 11% to 14%, Kelly says.
MasterCard and Visa both offer platforms that medium-sized and smaller banks can use to operate rewards programs. Larger banks often create their own reward programs.
Some issuers, including U.S. Bancorp, offer cash back as a reward for using debit cards. Washington Mutual has used a catchy ad campaign featuring obviously well-heeled bankers who are appalled at the notion of WaMu's free checking, which links cards and accounts by offering free checks for life, free ATM withdrawals in the United States and abroad, and cash back on debit card purchases.
Bank of America has gotten lots of attention with a program called Keep the Change. On debit card purchases, the bank rounds the sale up to the nearest dollar and puts the difference, which comes from the customer's checking account, into a savings account. BofA matches 100% of the deposits for three months and 5% thereafter, with an annual cap of $250 in bank contributions.
By July, more than 2.5 million consumers saved a total of more than $120 million in "loose change" with the Keep the Change program, says Diane Wagner, a BofA spokesperson. The program generated more than 800,000 new checking accounts and more than 1 million new savings accounts, she says.
BofA got the idea for Keep the Change from the fact that many consumers round up to the nearest dollar when they write checks to pay bills, thus making it easier to balance their checkbooks.
The bank has promoted the Keep the Change program by matching consumer savings to make contributions of up to $500,000 each to causes that have included the U.S. Olympic Committee, the Little League Urban Initiative and Habitat for Humanity projects in the wake of hurricanes Katrina and Rita.
Special events in venues ranging from the Today television show to New York's Grand Central Station and malls across the country have helped promote Keep the Change, says Wagner. In one stunt, consumers searched the cushions of giant red sofas for oversized tokens redeemable for prizes. In another, the speed of contestants' fastballs was measured to determine the size of a BofA charitable contribution.
More traditional promotions, such as sweepstakes, also have found a place in debit card marketing. Usually, consumers are entered to win every time they use their debit cards to make a purchase.
A recent MasterCard promotion, for example, awarded three winners with $1,000 a month for 10 years. The association created the contest with women in mind because they tend to control the family checkbook and prefer using debit cards to cash, says MasterCard's Preston. A subsequent MasterCard sweepstakes is offering 500 round-trip tickets to anywhere in the world that winners can share with family and friends, she says.
Banks also use sweepstakes to promote debit cards. In one example, the TCF Bank Wheels of Summer Sweepstakes, the winner received a Mustang GT convertible and a year's worth of free gasoline. Three hundred winners each got a prepaid $100 gas card from Minneapolis-based TCF.
Brochures and signs for bank lobbies also play an important role in debit card marketing because bank employees often introduce debit cards to consumers who are opening checking accounts, analysts say. Visa works with banks to produce those materials, says Visa's Pinkerd.
Despite that captive audience, debit card marketers have plenty of work to do. According to an Auriemma survey, 31% of Americans who have checking accounts still do not have debit cards. Many of those accounts may be with small, local banks, Bramlette notes.
Moreover, small-business owners do not use debit cards much for company purchases, Pinkerd says. While consumers make 55% of their payments with cash or checks, small businesses make 96% of theirs with cash or check, he notes.
Debit cards can free entrepreneurs of their oversized business checkbooks while providing consolidated reports that help them manage their businesses, says Pinkerd. Issuing debit cards to employees also aids in monitoring their spending, he says.
CONTACTLESS IMPACT
Contactless debit cards are expected to proliferate, offering another opportunity to capture market share. Contactless cards can cut transaction time and are especially well-suited to the everyday purchases some consumers make on debit cards, says Preston.
Contactless debit card purchases are processed as signature-based transactions, so the spread of such cards will contribute to signature-debit's share of the market, says Ed Lawrence, Auriemma managing associate. Signature-based transactions account for 55% of debit card purchases, while PIN-based debit has 45% of the market, Lawrence says.
Pinkerd says he sees the split as 60%-40% in favor of signature. Both methods are growing, observers say, but PIN-debit is growing faster because merchants ask for PINs because of its lower interchange fees.
One of the question marks in debit card marketing is represented by older consumers who are used to paying with credit cards and in many cases are "transactors" who pay off their bills every month and relish the rich rewards credit cards can provide, says Auriemma's Bramlette. "What is going to make those people switch to debit cards?" she asks.
And if those transactors do start shifting their spending to debit cards, issuers of credit cards, with their higher margins, may begin to worry, Bramlette suggests. Meanwhile, Pinkerd and Preston maintain that most of the growth of debit card use comes at the expense of cash and checks.
In any case, winning over the entrepreneurs, older consumers and transactors could prove challenging. Perhaps debit card marketers will continue to feel like circus ringmasters for some time to come.
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