Travel Rewards Not In Debit's Cards

  Hawaiians are separated from the U.S. mainland by thousands of miles but lesser distances from each other as residents of an island chain. Because of these demographics, Bank of Hawaii is offering customers debit card air miles as usage rewards, despite the potentially high cost of such offerings.
  Indeed, Bank of Hawaii's travel rewards program is not the norm for debit cards, say industry observers. In fact, travel rewards hardly register with debit card users, survey data suggest.
  Only 1.4% of 920 cardholders who responded to a 2005 rewards and loyalty survey conducted by consultancy Edgar, Dunn & Co. said they would get a new debit card if an issuer offered air-travel rewards. By comparison, 36% said they would get a new debit card if any account fees that may be assessed were eliminated.
  The same survey found that 4.2% of credit cardholders would replace their card with one tied to air-travel rewards, while 26.8% said they would accept a new credit card with fees eliminated.
  Cash-Back Preferred
  Another Edgar Dunn cardholder survey found that airline rewards lead all reward types among credit cardholders that participate in a rewards program. About 40% of respondents in the survey named airline miles as their most common credit card reward.
  Cash back was the most common debit card reward-cited by 14% of debit cardholders-although most respondents, about 70%, indicated they received no reward for card use. That compares with 34% of credit cardholders who stated they did not participate in a rewards scheme. Only 11% of debit cardholders cited airline miles as a reward they received for card use.
  Travel, unlike other debit card rewards types such as cash back, is likely to be used only in special situations and in local banking markets, such as the isolated travel environment of Hawaiian residents, says Ron Mazursky, an Edgar, Dunn director.
  "[Residents] have a need to get from one island to another. This is a very down-home product," Mazursky says. "I don't see air travel going through the roof" as a debit reward.
  Honolulu-based Bank of Hawaii is emulating credit card travel-rewards programs by charging debit cardholders who want to participate a monthly fee, which is $6. In exchange, participating cardholders earn one mile for every dollar they spend with their Bank of Hawaii Visa check card. The air miles can be redeemed for air travel on Hawaiian Air.
  Bank of Hawaii has discontinued offering travel rewards to new checking account customers, but it still offers the program to new small-business customers to encourage business debit card use. Bank executives were unavailable to state why the institution stopped offering the program for consumer accounts.
  Transaction activity may be one reason, however. Business debit cards commonly are used for purchases of higher ticket values than are debit cards attached to personal checking accounts, and issuers are tending to offer richer reward schemes for their use, says John Bresnahan, also an Edgar, Dunn director.
  "The use of rewards to market business debit cards has gone up," he says.
  Mazursky says applying richer debit card rewards for business debit card use than for personal debit use is a good way to promote business debit cards. But such rewards are in stiff competition with credit card travel-rewards programs that have been offered for years.
  In fact, most consumers who want travel rewards already have them on their credit cards, Mazursky says. "There are a lot of co-branded credit cards and airline cards around right now," he says.
  Moreover, debit cardholders are not used to paying a fee to have a debit card, as is commonly required to make travel reward programs economically feasible, says Mazursky.
  "They are very sensitive to any fees on a new card," he says.
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