I’ll probably get lots of feedback from this, but here goes: Debit Rewards programs mostly reward vendors who sell Debit Rewards programs. There – I’ve said it.
Strategically, it makes sense to encourage customers to use their debit cards and it makes sense to reward loyal customers. But the simple fact is that most Debit Rewards programs don’t significantly shift customer behavior or increase retention, so there is little return for the marketing investment. Here’s why they don’t work, and here’s what you should do about it.
Debit cards are used as a substitute for cash and the typical spend is about $38. At this level of activity, it is very difficult to generate meaningful rewards. Customers recognize this it is why participation in Debit Rewards programs hovers around 8-9%, even when financial institutions offer it for free. Furthermore, revenue from interchange will only decrease in the future, leaving less available to fund rewards programs. More retailers are finding ways to automatically recognize debit cards and direct them to PIN debit (vs. higher interchange Signature Debit), and interchange rates are under significant political and regulatory pressure. Long term, there is no upside for debit interchange revenue, and lots of downside risk.
This is a very different proposition from Credit Card Rewards, where the average spend is higher, the interchange is higher, and there is revenue from interest charges and annual fees.
So it is hard not to come to the conclusion that the typical Debit Rewards program just results in paying incentives for volume that financial institutions would get anyway.
But, as I said earlier, it makes sense to encourage debit usage and to reward customers. There are effective ways to do this — institutions in the top quartile of debit card usage have 27% more transactions and create about $120 per customer in debit related revenue. They do this by better targeting of customers to stimulate truly incremental volume
- not a “one size fits all” rewards program. In fact, many don’t even offer debit related rewards, but just focus their energies on shifting behavior of specific consumer and business debit card usage segments. Here’s just one example: changing the behavior of the 8% of debit card holders that only use their card at the ATM, and don’t use it at all for merchant purchases.
Rewards programs may have their place, especially when they recognize the total financial relationship (consumer and business) that a household has with your financial institution. But for most Debit Rewards programs, the value simply is not there.
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We have been very impressed with Raleigh, N.C.-based Coastal Federal Credit Union, which has deployed 36 Express Teller machines designed by uGenius Technology to supplement and sometimes replace traditional tellers. These are advanced ATMs that facilitate cash and check deposits, cash and coin withdrawals and official check withdrawals. Via the video/audio component, they also enable customers to speak with and see a bank customer service representative to discuss their transaction.
Coastal can handle 95% of all transactions that normally take place on their teller line, and the branch can be run remotely by their call center via technology and video link. This dramatically lowers branch cost.
This strategy certainly has a lot of appeal for credit unions that need to serve corporation campuses or stay open longer hours, but there is also a lot of potential for large banks that already have an extensive footprint as well.
Banking Strategies described how putting the ‘automated teller’ in automated teller machines enables banks and credit unions to expand their networks at low cost. Click here
for a PDF copy of the article Automated Tellers=Micro Branches?
Put this in the category of inexpensive, good ideas, smartly executed.
Austin, Texas based Amplify Federal Credit Union (www.goamplify.com) tailored their website to support the University of Texas Longhorns football team. Note the football integrated into the logo, burnt orange school color, message tailored to the Texas/Alabama game.
Amplify is particularly innovative in their products, technology, and retail relationship strategy and I thought this was a great example of creating a greater sense of community with web users.
As more customers (or credit union members) access the bank on-line instead of in-person, we need to find ways to create increased relevancy and immediacy. There are expensive to use the web and social media to build greater personal ties and relationships, and there are simple ones and this is an example of paying attention to what’s important to customers today (and in Texas, college football is always important to your customers!).
I’m not talking about sophisticated schemes, it’s this simple: an employee takes a $10,000 check made out to General Motors Corp., scrawls a handwritten endorsement “GM” on the back, and then deposits it directly into their personal checking account. Continue reading
Why did Cap One discontinue it’s innovative de-coupled debit card? Continue reading
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