September 27, 2011
by Margaret Weichert (MPD Managing Director)
As the Oct. 1 implementation date for the Durbin Amendment nears, bank card rewards and loyalty junkies are faced with some serious concerns. Major banks like U.S. Bancorp, Wells Fargo, Fifth Third Bank and USAA Bank announced plans to shelve their debit rewards programs entirely. Still others, including Chase, Regions, SunTrust and PNC, announced plans to limit new enrollments in their existing debit rewards programs. More large banks may follow this trend as the serious economic hit from Durbin fee caps hit bank income statements at the same time as broader economic concerns threaten other bank revenue sources.
However, a few banks – both large and small – are bucking the trend and using innovative reward programs to cement customer loyalty, deepen customer relationships and consolidate transaction behavior with a single institution. Moreover, many players not directly affected by Durbin legislation are using this opportunity to enhance their rewards programs, making them more flexible, with broader redemption options and greater earning potential. Many of these players see this as a unique opportunity to steal market share while the larger players are handicapped by the new regulatory requirement.
However, some large banks are not letting the regulatory changes deter their attempts to reward customers and incent profitable behavior. Retail banking giant Bank of America has indicated that it will not change its debit rewards programs, which include the Bank of America Cash Rewards, the merchant-linked Add It Up program, Keep the Change savings program, US Air debit card and specialty affinity cards that link to specific charities, teams or colleges. Banks, like Bank of America, see these rewards programs as ways to provide cardholders with incentives to keep their deposits at that bank, even though debit interchange is going down. Still other banks, like KeyBank, are taking rewards to another level, ramping up their rewards programs in an attempt to steal market share.
Even before the final Durbin decision was made by the Fed, some banks, including Ally Bank, Beneficial Bank and some credit unions, moved to offers merchant-funded rewards programs These programs use third-party players, like Cardlytics, BillShrink and FreeCause, to serve up offers to cardholders via email and online banking, which then result in awards and/or statement credits. Chase launched a merchant-funded program in August, and Ally Bank has a version of merchant-funded rewards, called Ally Perks. Wells Fargo’s Earn More Mall, provided by Cartera Commerce, provides a different take on the same basic concept.
Smaller banks and de novo upstarts, like PerkStreet Financial, continue to offer attractive rewards programs for debit card holders. PerkStreet’s Debit Rewards offers 2% cash back as a way to entice new customers to bring their banking relationship to PerkStreet.
Despite moving away from pure debit rewards offers, some banks are shifting toward broader relationship-level rewards programs. Fifth Third’s Rewards Checking Package offers points for a variety of behaviors, including debit usage, direct deposits and also provides fee waivers for certain behaviors as well, providing Fifth Third with “new ways to offer free” to their customers. Similarly, PNC has a points program that rewards a variety of cardholder behavior, although it is unclear that this will be available to new customers. In any case, processors and third parties have built capabilities to make this type of relationship rewards program accessible to banks of all sizes. Fiserv launched its Relationship Rewards capabilities in April of 2011. A host of specialty rewards players, including RewardNOW, make it easy for banks to reward multiple types of behaviors.
Probably most interesting, however, are the wide range of new points programs that are developing completely outside of the bank sphere of influence. Merchants and mobile innovators, like shopkick, let consumers earn points for a variety of commerce related behaviors, including “checking in” at retail locations, researching products and ultimately buying products. Mobile applications, like the Starbucks loyalty app, provide real-time customer interfaces that show reward point accumulation as it happens.
Each of these players highlights one basic theme: that rewarding loyalty and incenting desired behavior is still relevant to players across the commerce value chain. Bankers paralyzed by the recent Durbin changes will ignore this reality at their peril.