Earning miles with Delta Air Miles with a travel debit card from SunTrust (STI). Wells Fargo (WFC) will let you apply reward points towards a home equity loan. And Regions Financial’s allows you to earn 4% cash back on downloads from iTunes. These are just a few examples of loyalty programs being used by banks to increase revenue from customers as they continue to look at severe loan losses.
In 2010, consumers are expected to spend $1.64 trillion with their debit cards. And there is not indication this growth is slowing down anytime soon. In fact, with credit cards becoming tougher to come by, the debit card is becoming the preferred form of payment for many consumers.
And this has banks seeing a potential source of much needed dollars. Loyalty programs. A concept that is synonymous with credit cards, but now being looked into by banks as a way of generating increased fees.
Adding to this revenue gap are new Federal Reserve rules that restrict how banks charge overdraft fees to their consumers.
“The rules have changed for debit cards,” said Gerard Cassidy, managing director of bank equity research at RBC Capital Markets. “What banks have to figure out is how to maintain revenue growth of this product under the new rules and conditions we have to operate under.”
But will consumers who, in most cases, don’t have to pay for the privilege of having, or using a debit card, embrace the concept? Only half of the nation’s banks have some sort of debit card loyalty program in place. However of the ones that do, many consumers are embracing such offerings, stating their current preference of using their debit card for staples like gas and groceries.
However, in the end, even the best loyalty program may not be worth it to the average consumer. That’s because for most benefits to be earned, consumers would have to pile up significant charges. For example, a consumer looking to earn a $100 credit towards an airline purchase, would have to spend $33,333, according to research published by consulting firm TowerGroup. And this could be in addition to an annual fee.
But other reward programs may indeed offer real value. “Consumers need to have an eyes wide open perspective when it comes to financial services,” said McBride of BankRate.com. “Fees are cropping up, but that also gives you a chance to comparison shop. There may be just as many good deals at the other end of the spectrum.”
