Debit Card Rewards – Not Quite Dead Yet
Historically, debit card reward programs were employed by issuers to increase penetration, activation, and usage of debit cards among DDA customers. However, the enactment of the Durbin Amendment dramatically changed debit economics and prompted issuers to reevaluate their debit product and deposit account offerings. In an effort to control cost, many eliminated debit rewards programs. This is observable by comparing the number of debit rewards programs in the market before and after the enactment of the Durbin Amendment. In 2009, 52 of the Top 100 debit issuers offered a rewards program. Today, only 37 maintain such programs.
The elimination of rewards programs between 2009 and 2012 was not evenly distributed across debit issuers. As demonstrated below, issuers regulated by the Durbin Amendment dropped rewards programs with greater frequency.
The rise in rewards programs among exempt institutions suggests smaller debit issuers may have positioned themselves for the post-Durbin fallout by either retaining existing rewards programs or initiating new programs designed to capture customer migration away from larger banks. There is now almost an even split of rewards programs between regulated and exempt issuers.
Of the 37 existing rewards programs, 22 are points-based, 12 are cash-back programs, and 3 are miles-based. Additionally, seven issuers offer discount programs such as Visa Discounts and MasterCard Marketplace; however, these were not considered traditional debit reward programs for this study.
Though many of the recent reward program investments were made by smaller issuers, 19 of the 37 active rewards programs are offered by institutions regulated by the Durbin Amendment (>$10 billion in assets). The affordability of these programs may be the direct result of fee structure changes and minimum balance requirements implemented in the period following the passage of the Durbin Amendment. Only 15 of the debit rewards programs currently in market are associated with free checking accounts (i.e., no minimum balance requirements or card usage commitments). Several issuers have restructured reward-eligible accounts and added fees and/or balance/usage requirements. PNC, for example, offers a no-fee account without rewards alongside a more robust account with rewards and associated fees.
Despite the elimination of programs over the past several years, predictions proclaiming the death of debit rewards appear to be premature. Durbin-exempt issuers are increasingly viewing rewards as an opportunity to differentiate their products while some regulated financial institutions continue to find value in offering debit rewards. This dynamic will be interesting to observe over the coming months as issuers of all sizes continue to fine tune their debit strategies in a post-Durbin world.
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