Debit card rewards are going the way of the rotary phone.
Many of the country’s largest banks — including JPMorgan Chase and SunTrust — are eliminating the rewards programs, now that Washington plans to slash the fees that merchants pay banks when consumers use the debit cards for purchases.
“I couldn’t get enough rewards yet, and now they canceled the program,” said Chase customer Sora Villalba, a South Florida hotel cook who paid $25 for a debit rewards card last year to start racking up points for a trip. “My friend had told me that these programs are not really good, because the banks always get more than you do.”
Other big banks are still mulling options on their debit rewards, including Bank of America, Citi and TD.
But the future looks bleak for the popular programs that let debit card holders accumulate points with spending and trade points for gift cards, electronics and even long-distance travel, analysts say.
JPMorgan Chase ended debit rewards for new customers in February and will chop them for existing customers July 19. Wells Fargo ended debit card rewards for new customers March 27 and its Wachovia unit will follow suit April 15. SunTrust is axing the rewards April 15, with points to expire Jan. 1. And PNC has told customers with free checking accounts that their debit rewards end Sept. 12.
“It sucks if they end rewards,” said student Christine Urquiola, 18, as she withdrew money from a Wachovia branch. “The only reason I like using my debit card is for the rewards.”
Banks began aggressively offering debit rewards in the past 5 to 10 years as a way to boost customer loyalty. The programs are especially popular among customers who don’t have credit cards or who are trying to pay down credit cards. Rewards on credit cards are more generous, industry analysts say.
If banks ax rewards programs, debit card customers with points should try to use them. Some reward points expire when the programs do.
Cuts in rewards programs come as banks and finance giants such as Visa try to recoup some of the billions of dollars they expect to lose from a Federal Reserve proposal. The Fed plan would slash the usage fee that banks collect on debit cards from an average 44 cents a swipe to a maximum 12 cents a swipe starting July 21.
Finance heavyweights are fighting the plan, with several bills in Congress to amend the law mandating reform. JPMorgan Chase estimates it will lose $1.3 billion a year if the Fed proposal takes effect. In all, the financial industry could lose $10 billion a year from the Fed plan, Raymond James Equity Research has estimated.
Not all banks have debit rewards programs to trim. Of 110 big institutions surveyed in 10 large U.S. markets early last year, Bankrate.com found 40 programs offered, with some banks offering more than one.
But all banks are considering a range of options to offset the potential losses: higher charges for checking accounts; higher fees for using automated teller machines; caps on spending with debit cards; or annual fees on debit cards themselves, said Greg McBride, senior financial analyst at Bankrate.com.
Debit rewards are an easy place to start, since they don’t impose extra charges on consumers. Indeed, some banks already are talking with merchants to have stores pick up the cost of new debit rewards programs, perhaps by offering store gift cards, coupons or discounts directly to bank debit card users, McBride said.
That’s little solace, however, for Boris Quesada, 32, who waits tables at a Mexican restaurant in Hollywood, Fla. He’s losing his debit card rewards at Chase and also heard that Chase plans to require a minimum balance on his checking account there if he hopes to avoid monthly maintenance fees.
“If they cut rewards and require a minimum balance, I’ll look to switch banks,” Quesada said. He already balked when Bank of America raised fees on his checking account and negotiated lower charges to keep cash there.
That leaves banks walking a “tightrope” on handling lower income from debit-card use, Bankrate’s McBride said. Rewards help build loyalty, and consumers “have reached the boiling point on fees,” he said. A recently released Bankrate survey found 64 percent of respondents would consider switching banks if fees were raised on their checking account.
“If they push fees too high,” McBride said, “customers are going to be inclined to bolt.”
Source: McClatchy-Tribune Information Services.