Debit Card Issuers Explore Rewards Programs to Drive Growth and Acquire New Accounts

Debit card issuers have traditionally shied away from offering rewards programs due to operational costs, but a recent innovation by MasterCard International and Charter One Financial Inc. may change this dynamic. The platform developed by MasterCard allows issuers to create rewards programs that incentivize cardholders to use their debit cards more frequently and for larger purchases. Charter One's new program, launched in partnership with MasterCard, rewards cardholders with points that can be redeemed for merchandise, flights, or even a domestic round-trip ticket.

Key Takeaways:

• Charter One's rewards program, launched in partnership with MasterCard, offers points for every signature-based purchase, which can be redeemed for merchandise, flights, or travel experiences.
• The program aims to increase acquirer-paid interchange revenue by encouraging cardholders to use their cards more and for bigger purchases, and also expects to generate new accounts.
• MasterCard International will oversee the customer-service and reward-redemption aspects of the initiative, charging a negotiated fee based on the issuer's size and transaction activity.
• Charter One's program is the first of its kind, with several large MasterCard Debit issuers expected to launch similar programs soon.
• All 1.3 million Charter One MasterCard Debit cardholders are eligible to participate for an annual $15 fee, which is waived the first year.
• Points summaries will begin appearing on participants' checking statements beginning in January, and accumulated points can be used to redeem products by phone or online.
• The program is expected to generate significant revenue for the bank, with Charter One officials believing it will drive greater acquirer-paid interchange revenue.

Statistics:

• The rewards program has the potential to generate new accounts, with Charter One officials expecting the program to attract new customers.
• The program charges an annual fee of $15, waived for the first year.
• Charter One MasterCard Debit cardholders earn 1.3 million points, which can be redeemed for merchandise, flights, or travel experiences.
• MasterCard International will oversee the customer-service and reward-redemption aspects of the initiative.
• Charter One recovered $1 million in excess merchant fees from April to November through a previous initiative.

Sources:

• MasterCard International
• Charter One Financial Inc.
• Chase Manhattan Bank
• Continental Airlines
• St. Paul Federal
• First Union
• Lorraine Fischer, First Union senior vice president
• Mark Grossi, Charter One executive vice president
• Jerry Sargent, MasterCard Debit product manager