Debit card reward schemes offered by more banks

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By: Wise Marketer Staff |

Posted on August 25, 2008

Debit card reward schemes offered by more banks

A new study of debit card issuers shows that more than half of the financial institutions examined now offer debit card rewards programmes.

Surcharge-free ATM access is gaining in popularity among debit card issuers as they explore new ways to better serve cardholders, according to the 2008 Debit Issuer Study, commissioned by Pulse. Financial institutions also are increasingly offering debit rewards. The study, conducted by Oliver Wyman, provides new data and comparisons to the results of the 2007 Debit Issuer Study, released in February 2007.

According to Cindy Ballard, Pulse executive vice president, "Although growth in debit use remains strong, debit card issuers are broadening their electronic payment services to include new payment devices, targeted cardholder perks such as surcharge-free programmes, and greater levels of service. Based on survey responses, we expect this trend to continue over the coming years."

Debit Rewards Offering a debit rewards programme can have a variety of benefits for card issuers, including an increase in transaction volumes, differentiation from competitors and promotion of debit card use. The availability of debit rewards has increased significantly since the previous Pulse study, with 51% of respondents now offering rewards, compared to 37% in 2006. An additional 23% of issuers surveyed say they are considering adding a rewards programme.

The increase in debit rewards is driven mainly by a growing interest in cash rewards, which are now offered by 42% of respondents that have debit rewards programmes, compared to 16% in 2006. Points-based rewards are the most common programme type, offered by 58% of the institutions that have programmes. Merchant-funded rewards programmes are gaining in popularity and far out-pace other programme types in terms of cardholder engagement (83%).

"Cardholder engagement remains a key challenge for debit rewards," says Tony Hayes, an Oliver Wyman partner, who served as project lead on the study. "A sizeable portion of institutions we surveyed are planning to revamp their rewards programmes in 2008 to generate greater customer participation and increased return."

Emerging Payments Although all emerging payments options have benefits, each faces significant growth challenges, says Hayes. For example:

  • Contactless cards: Ten percent of respondents currently offer contactless debit cards. Another 35% say they plan to introduce this capability in the future. Of those that offer contactless, only 24% of their card base is contactless, on average. Key barriers to contactless adoption are low merchant acceptance, unfavourable cost/benefit ratios and low demand.  
  • Mobile banking: Fifteen percent of respondents currently support mobile banking, and another 28% say they are planning to introduce it "soon." With the technology still in a state of development, most issuers are taking a measured approach.  
  • Mobile payments: Mobile payments (the technology includes mobile phones equipped with payments-enabled chips, as well as message-based payments) is largely in the research phase, with 56% of issuers exploring the possibility of implementing it.

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