Perspective: What Do Consumers Really Think About Debit Rewards? And What Can You Do About It?

Consumers are increasingly choosing debit over credit. Many members of Generation Y have always used debit cards–39 percent of Gen Yers use their card at least 15 times each month, according to Aité Group’s 2009 report Engaging GenY: Cultivating a New Generation of Banking Customers –and other consumers are making the transition as a way to re-structure how they control their spending.

Are you making that switch worth their while?

According to First Data’s 2009 Consumer Loyalty Study , more consumers are debit card rewards members – 45 percent of consumers in 2009, up 11 percentage points over 2008.

However, the study also showed that less than 20 percent of debit rewards members have a high rate of satisfaction with their debit rewards programs. And debit rewards programs are the least influential type of rewards program.

What does all of this mean?

Financial institutions have a great opportunity to increase customer satisfaction, influence spending behavior and strengthen bonds with their customers

With more consumers using debit cards, it’s not surprising that more are also using rewards programs associated with debit cards. But many debit reward programs are so anemic they do little to influence consumer behavior. How can financial institutions give programs a boost and keep program costs down?

Issuers are finding creative ways to enhance their programs, including partnering with retailers and offering consumers rewards for using multiple financial products.

How partner marketing programs work

Partner marketing programs – sometimes referred to as “merchant-funded loyalty” – create enhanced rewards for financial institutions and retailers. Here’s how they work:

  • ABC Bank’s card holders earn an enhanced reward – for instance additional cash back or more points – when they use their ABC Bank debit card at XYZ Retail’s stores or on the Web site.
  • The financial institution promotes the opportunity through a Web site, targeted mailing, e-newsletter, etc., to let cardholders know about the opportunity to earn more rewards by shopping with the partner retailer.
  • The retailer funds the consumer rewards when consumers shop in stores or online.

In addition to sharing the cost of increased rewards, partner marketing programs allow financial institutions to refresh programs on a regular basis without having to re-tool the entire program. Premier loyalty programs layer these partner marketing programs over traditional programs, so customers always earn points/rebates for using their card, and they also see a boost when shopping with partners.

Rewarding profitable behavior across products

Financial institutions are looking beyond demand deposit accounts when creating loyalty programs because the consumer retention factor increases with the number of products and services they use.

A well-branded loyalty rewards program creates a valuable currency that can be used to drive profitable consumer behavior across the all products: Earn rewards when you sign up for bill pay, direct deposit, make an on-time loan payment or open an asset management account. Consumers choose their financial institutions based on a variety of factors. While debit rewards programs are proven to help retention, they don’t necessarily bring customers in on their own.

Even so, financial institutions don’t want to be seen as lacking in the rewards department when consumers are comparing services with other financial institutions.

The current environment is challenging for consumers and financial institutions. But it is possible to create and refresh loyalty programs that are relevant and rewarding for consumers and financial institutions alike.