Debit rewards programs are alive and kicking despite their predicted death via the Durbin Amendment, according to a new study by Mercator Advisory Group.
The Durbin Amendment, which took effect in 2011 as part of the Dodd-Frank Act, reduced debit interchange fees on card purchases, causing many to predict the demise of debit rewards programs in order to make up for lost revenue. But five years later, 50-60% of financial institutions in the U.S. offer debit rewards, Mercator found.
“We're seeing a return to checking accounts, for starters,” said Sarah Grotta, the director of Mercator's debt advisory service. “As we were going through the recession, we saw individuals leaving financial institutions as a whole, leaving checking accounts behind. Now they're starting to return, so with checking accounts you have a return of debit cards.”
The survey included the nation's 25 largest credit unions, and the number offering debit rewards increased from eight to 10, Grotta said.
First Credit Union offered a debit rewards program for the first time and Golden 1 dropped its debit rewards program, she noted. Two credit unions charged for their debit rewards programs: Security Service FCU ($2 a month), and Teachers FCU ($4.95 a month, though its program also has “other relationship aspects,” Grotta said).
Security Service FCU, headquartered in San Antonio, Texas, has $8.3 billion in assets and about 915,000 members; Teachers FCU, headquartered in Hauppauge, N.Y., has $5 billion in assets and about 246,000 members.
About 22% of exempt organizations – those with assets below $10 billion – offer merchant-funded debit rewards programs, she said. On the regulated side, 31% do. Mercator also found that larger institutions are leaving points programs and drifting toward merchant-funded programs. Cash-back programs seem stable for now, likely because consumers prefer cash rewards, Grotta said.
Either way, rewards programs are associated with higher debit card use, especially for young adults, according to the study. “When we surveyed folks and asked them, 'Does this really make a difference?' they would say categorically, by a pretty decent margin, that yes, debit rewards would change their behavior,” Grotta noted.
Now, debit rewards programs may be a competitive necessity for credit unions, Grotta warned.
“Taking a look at encompassing debit rewards into your portfolio is probably going to be pretty important, but I would say yes, there's an expense aspect to that – but there's a lot to be said for the other side as well,” she said. “I think it would be a really valuable trigger to creating that deeper relationship with consumers.”
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