Younger Consumers Inclined To Choose Debit, Especially for the Rewards

Debit-rewards programs offered by banks appear to be rebounding a little, with younger consumers more motivated than other age groups to use them. That’s according to a new report from payments-research firm Mercator Advisory Group Inc.

Debit rewards programs fell out of favor with banks following passage of the Durbin Amendment, which took effect in 2011 and limited debit-interchange rates for financial institutions with $10 billion or more in assets. Interchange income to issuers typically helps fund card-based rewards programs.

In its “Top 50 U.S. Retail Banks and Credit Unions’ Debit Rewards and Loyalty Programs: 2014 Annual Review” report, Maynard, Mass.-based Mercator found that among consumers 18 to 34, 51% say they would be motivated or very motivated to use their debit cards because of rewards, Sarah Grotta, director of Mercator’s debit advisory service, tells Digital Transactions News in an email. In comparison, only 34% of all age groups noted a similar inclination.

The favorite reward for younger consumers? Cash. They prefer it more than all other age groups combined, she says.

“After 2011, we saw a drop off in debit usage overall,” Grotta says. “It appears that decline is leveling off. We saw an increase in 2014 in household debit usage for the first time since 2011. The presence of a debit reward program is a motivating factor for those who do have a card today.”

Notably, the report also found a greater interest and reliance on merchant-funded rewards or discount networks, Grotta says. The reason is that such programs keep banks’ costs down. Larger financial institutions also like that because of their diminished debit-interchange revenue, she says.

Smaller banks, in particular, have expressed a lot of interest in debit-rewards program, which help spur debit card use, Grotta says. “Smaller institutions want to be competitive, and the industry is now seeing that the instance of debit rewards among smaller financial institutions is about on par with larger organizations,” she says.