Bank of America has “Keep the Change.” Citibank has “ThankYou Points.” And now Citizens Bank has come out with its own take on debit card incentives: “MegaRewards.”
“Get rewarded for just being you,” the new ads entice customers. It’s pretty simple: For every dollar you spend using your debit card, you earn a point – as long as you sign for it, as with a credit card, rather than using your PIN.
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Every time you use a “tap-and-go” PayPass terminal, you earn double points. And if you schedule automatic payments on your card for your cable bill, your car insurance, etc., you’ll earn double points for that as well.
At 3,600 points, you can earn a magazine subscription, an airline-ticket discount or a radio. At 10,000, the prizes include $25 restaurant gift cards and a free companion airline ticket. Reach the max, 140,000 points, and you can get a 20-inch flat-screen TV, a digital camera, or a Sharper Image air purifier. Points can also be redeemed for charitable donations ($50 for 20,000 points).
“Citizens continually looks for ways to thank our customers and reward them for their business,” said Joseph J. Marc-Aurele, chairman, president and CEO of Citizens Bank of Rhode Island. The new program is designed to reward customers “for everyday purchases they are already making” with their debit cards, he added, and “we also look forward to leveraging this program to introduce our convenience and service to new customers.”
But what does the bank get out of it?
For starters, there’s the promotional value, which MarcAurele highlighted in an interview. Rewards programs are meant to build customer loyalty, and they’re also a selling point for consumers who might not see a big difference between Citizens and its competitors.
“I think in a competitive environment, which we certainly are in, in banking, any time that you have an opportunity to build loyalty with existing customers and potentially have an opportunity to get to new customers, you do it,” MarcAurele said. “In other industries,” he added, “certainly rewards programs have been popular and have proven to be a good customer-retention tool.”
The MegaRewards program’s structure hints at the other big reason banks offer debit card rewards: It’s a way to generate fee income. Every time a customer uses his card, the merchant pays a fee. The issuing bank gets part of that fee.
Since the fees for credit cards are much higher than for debit cards, banks earn more if you use your card as a Visa or MasterCard rather than by punching in your PIN. Thus many programs, like Citizens’, don’t pay rewards at all if you use your PIN, or they pay more if you sign.
(Bank of America’s “Keep the Change” doesn’t distinguish between credit card and PIN transactions, but it’s also designed differently – it rounds up to the next dollar and deposits that amount in a savings account, with the bank matching 5 percent, up to $250 a year.)
Asked whether the higher fees were a factor for Citizens, MarcAurele acknowledged that “there is a difference in revenue,” but he said “that’s not really … why we’re using the signature.”
Enrollment in Citizens’ program is free, unlike some debit rewards programs. There is, however, a “redemption fee” involved – $5 for gifts valued at 10,000 points and more, $30 for domestic airline tickets, $50 for international tickets, $30 for travel packages, and $20 for expedited delivery of travel documents.
