Well it’s official, banks have made the decision to eliminate their debit reward programs. The culprit? Banks blame the loss of high debit card swipe fees. So are the days of earning discounts, cash back and points for swiping our debit cards a thing of the past. Before you get angry see what merchants and smaller banks currently have in the works.
Over the last week, Chase, Wells Fargo and SunTrust bank all announced that by the summer their debit rewards programs would be eliminated. Expectations are that other banks will follow and in the end consumers are left with higher fees, hard requirements to avoid these fees and lack of value if you are active.
With pretty much every piece of value beyond storing your money on the way out, it was a welcome surprise when I had an opportunity to test out financial products developer Intuit’s newest offering. This latest tool is designed to allow banks to present consumers a way to “save money on products and services they already buy without the hassle of coupons by activating targeted merchant discounts.”
To date, 100 banks and credit unions, including Beneficial Bank have implemented this service. During my conversation with the Intuit team, they highlighted that over 3 million banking consumers already have the ability to start earning rewards from merchants.
If you are not familiar with Intuit, they are the creators of Turbo Tax and Quicken. They are also not the only one currently offering this service as BillShink launched Statement Rewards last October.
How Merchant-funded Rewards Work
If you are a member of a participating bank or credit union, you will automatically start receiving merchant reward programs through the banks online banking interface. By reviewing your statement activity, you will see offers based on purchases you made.
For example, Starbucks may offer you 10 percent off, after you spent $10 at Dunkin’ Donuts last month. If you like the offer, all you need to do is add the discount (deal) to your card, so when you swipe your next purchase in-store or online, the bank will credit you the difference.
With merchant rewards, consumers are presented with deals that are more targeted to their spending habits. Merchants have the opportunity to target users that are interested in their products or offerings and banks win because you have to dedicate your purchases to using the card that the deal is linked to.
How Merchant-funded Rewards Can Change Consumer Spend Habits
Beyond the move to try new merchants based on the offer, there is an other scenario that could benefit this new model: mobile transactions.
While the market continues to go crazy for a mobile wallet, I am most interested in the partnership between American Express and check-in service Foursquare. The two companies recently launched a feature that allows AmEx customers to sync their credit card to the app and much like merchant rewards when accepting a deal through the app you use the registered card to complete purchases and are later credited.
Knowing this, what about a scenario that goes beyond the check-in or online statements and offers deals to your phone based on your purchases? It would be taking my original Dunkin’ Donuts example and adding a mobile aspect. The banks and merchants know every morning you go to Dunkin’ Donuts, as well as which one, due to store merchants IDs. At this point Starbucks knows they have their own location right across the street so you as a consumer wont have to change your travel habits.
With all this information, one morning you wake up to an alert for a deal from Starbucks. You open the alert, accept, which syncs the offer to your card and off you go with your day, except you go to Starbucks.
The possibilities are endless when banks begin to work with merchants to offer deals based on your purchasing habits.
In the end, the banks will always look for ways to make a profit. Even though Intuit says that banks don’t receive a cut on the purchase, but instead guarantee the swipe fee, it only means banks will look to use these deals to shift consumers to use the one card not affected by the new interchange rules, and that is their credit cards.