Will retailers give debit cards a new life?

October 13, 2011

A sign for wine supplied by John Ulzheimer. REUTERS/handoutAs an expert on the credit industry, John Ulzheimer spends his days thinking about credit cards, debit cards and credit scores. So imagine his surprise when he picked up lunch at a restaurant near his house in Atlanta, then later went on a beer run, and was directly confronted with the consumer fallout from the hot-button issue of the day in his profession: new fees for debit card purchases imposed by government regulations.

“The liquor store has an entirely new pricing structure – the cash/debit card price was 5 percent less. And, at the restaurant, for the first time ever, they asked me if I was paying by cash or debit card or credit card, even before I ordered my meal,” he said, and sent along picture at right from the liquor store.

Since the start of October, the credit industry has been focused in on debit cards, as the Durbin Amendment kicked in federal limits on how much card issuers could charge merchants per transaction, and which last week translated into some major banks imposing monthly fees on users for using their debit cards for purchases. Bankrate.com also released a new study that showed reward offers for debit card usage declined 30 percent in the past year.

It seemed as if the industry was conspiring to turn those cards from a popular payment method back into a piece of plastic you only use to get cash from the ATM. And some said good riddance. “There’s absolutely no reason that consumers need to use a debit card. And I was in that camp before this legislation,” said Odysseas Papadimitriou, CEO of credit card comparison site Cardhub.com, which just released its own study on how the new fee limits will affect consumers.

But the end of debit cards as we know them may be forestalled by retailers, as Ulzheimer noticed in his real-world forays. (Bankrate’s senior financial analyst Greg McBride noted also that smaller community banks and credit unions will also keep debit cards afloat, as they are not affected by the Durbin fee structure changes.)

Some merchants are already willing to pass to along to consumer their newfound savings in fees from the bank. Others will not, but may participate in merchant-funded reward programs, which seem to be taking prevalence in the dwindling space overall of reward programs for debit cards.

“It’s a noticeable shift,” said McBride. “We see that 29 percent of offers are now merchant-funded, versus 13 percent last year. It’s a shift you expect not just to hold, but also to continue.”

Survey results from FreeMonee.com. REUTERS/handoutStart-ups are also trying to capitalize on advances in behavioral marketing and gear banks to offering different sorts of incentives than traditional reward points. One such player, FreeMonee.com recently conducted a Harris poll and found that what consumers want is for their bank to help them save money and what they want most of all are cash-back offers or rebates – not discount coupons, vouchers, points, miles or anything that delays their gratification in the form of a reward they may not even use in the future. And 63 percent of their respondents said that they’d be “very to somewhat likely” to change to a different bank if it provided a better retail offer with no strings attached.

This fits in with the company’s approach, which is to offer cash incentives for particular merchants that you get when you use your debit card at that merchant. The offers you get are identified for each cardholder based on their past purchases. The premise is that merchants will be willing to pay for the promotion because the algorithms of the targeted marketing are going to deliver good potential customers, and the banks are happy with it because they recoup some of the revenue lost with the Durbin amendment, and customers get the cash they want.

“Consumers are inundated with offers,” said the company’s CMO Jim Taschetta. “Consumers are saying: You need to do something different than plain discounts.  If you want to motivate me to change my behavior, you have to give me cash.”



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Credit Union all the way. Why bother with traditional banks if you do not have to?

Posted by Intriped | Report as abusive

“If you want to motivate me to change my behavior, you have to give me cash.”
Wow, that says alot about how foolish the average consumer is. Great propaganda for the financial industry though.

Posted by tmc | Report as abusive

Plastic money in full use around the world if government of some countries imposes some kind taxes it will hurt its growth vertically as well.Debit card can use in such countries very easily where street crime rate is high and very dangerous to travel with cash

Posted by ADEELA | Report as abusive

I would think for merchants the perk for Debit is quicker payments. Maybe even less fee’s for them to pay. But I think the tide has turned for banks. They are being squeezed to stop risky investments and loans and they are now turning to fee’s to make up that difference. Frankly, their is not much people can do but shop around for a bank who offers less fee’s. People are probably better off using debit cards more wisely and using credit cards and private store cards for purchases. Many offer cash back,or discounts.
This is probably a unpopular opinion but I do not blame banks for the fee’s. People don’t save like they used too. Banks are more of a money transfer service. Money goes in,money goes out. Where is their perk in paying people for you? Since banks do not pay anyone decent interest on savings anymore thanks to Ben Bernanke virtually eliminating the rates. Who really wants to use the banks for anything but a money transfer service?

Posted by jscott418 | Report as abusive

you can kick the american consumer in the head, the gut and the butt. what they notice is when you kick them in the wall et. welcome to the american attention span!

Posted by kehenalife | Report as abusive

Pretty Nice post.Great Resource.And About Debit Cards You Explained well

Posted by josephraj | Report as abusive