Consumer payment preferences have shifted, but many loyalty strategies have not. Debit has become the primary payment method for a growing segment of consumers—especially younger generations—yet many financial institutions continue to focus their investment on credit card programs.
That disconnect represents a clear opportunity. By extending loyalty and engagement strategies to debit through co-branded programs, institutions can reach a broader customer base while fostering loyalty and maximizing brand cachet.
In a recent PaymentsJournal webinar, Paul Dunning, Director of Business Development at Galileo, Dan Dougherty, Partner at Marketgate Advisors, and Jonathan Clarkson, Founder of Carlisle Advisory, discussed why co-branded debit programs are gaining renewed momentum and how they can help financial institutions transform debit from a transactional product into a strategic engagement tool that can extend these loyalty and engagement benefits across the full spectrum of the customer base.
A Convergence of Trends
As with co-branded credit cards, airlines led the charge with co-branded debit products. However, many of these programs were shuttered following the passage of the Durbin Amendment in 2010, which capped debit interchange fees for larger banks.
In recent years, however, there has been a renewed shift toward co-branded debit driven by several factors. The first is consumer behavior and the enduring preference for debit cards. As organizations have recognized this demand, many have revisited and strengthened their debit strategies.
Another critical factor is technology, which has made it much easier to deliver seamless experiences at scale.
“I’m an individual that had one of those airline debit programs pre-2010, and my experience at that time was you take time off work, you go into a branch, you fill out a form, you get that card a few days or weeks later and you start spending—and that demand was always there,” Dunning said.
“What’s changed over the last 16 years since those programs shut down is the infrastructure and technology behind account opening in mobile and web, behind the ability to send an acquisition email to a consumer that has a high propensity to get this product,” he said. “And then the ability to sign up, get approved, provision in wallet, and start spending all within a matter of minutes or hours, versus what transpired before.”
Economics and Engagement
Despite advances in technology, many financial institutions still question whether the revenue generated by a co-branded debit card can offset the expense of operating the program.
While the economics are not as compelling as those of credits, debit transactions still offer healthy margins. Given the volume of debit transactions many financial institutions process, the resulting revenue often exceeds expectations.
The opportunity extends beyond interchange revenue. Because consumers use debit cards every day, co-branded debit programs create frequent opportunities to deepen engagement, reinforce loyalty, and keep an institutions brand top of wallet and top of mind.
“When you look at the most engaged customers in any loyalty program, irrespective of the vertical, the people who have the cards tend to exhibit all the behaviors that those brands want,” Clarkson said. “Not only do they have the cards and spend on those, but they also tend to be the most engaged people in the loyalty program. They tend to buy premium products. They tend to have more frequency for the brand than less engaged customers.”
Just as importantly, institutions that have embraced co-branded debit have found little evidence that these programs cannibalize credit card portfolios. Instead, debit and credit tend to serve distinct customer needs, allowing the two products to complement rather than compete with one another.
“We’re not seeing that in the data in the launches that have happened,” Dougherty said. “You have significant populations of engaged loyalty members that just want to use debit, and they weren’t going to use credit today—maybe later, but not today. Or they have both and they’re going to continue to use both. Knock on wood; it’s still early innings, but we are not seeing the cannibalization which was one of the biggest concerns.”
Reinforcing the Emotional Connection
This true value of co-brand debit programs lies in their ability to create more meaningful consumer relationships. By bringing consumers into loyalty ecosystems, these programs give institutions new opportunities to engage customers through personalized experiences and relevant rewards.
Just as technology allows for faster implementation and smoother user experiences, it also allows institutions to take these programs further. For example, artificial intelligence can enable unprecedented personalization, significantly enhancing rewards programs.
“The future isn’t bigger rewards; it’s smarter rewards,” Dunning said. “That’s certainly an added piece to the full financial suite for brands and we have economics and cost controls to be able to do that.”
“What we’re seeing is a shift towards more dynamic programs, brands exploring personalized rewards, real-time offers, digital wallet-first experiences, and—I’d say most importantly—just the tighter integration between the card, the app UX experience and the end loyalty platform,” he said.
These capabilities allow institutions to tailor rewards based on spending behavior while exploring avenues for instant reward fulfillment. They also improve transparency, giving consumers greater visibility into spending and reward redemption.
While these benefits enhance customer experience, they also provide organizations with an opportunity to reimagine and modernize their loyalty strategies.
“The innovation aspect of this is a lot of fun for the folks on the brand side, especially if you’re a program owner for an airline like Southwest or United or somebody in the hotel or even retail space,” Clarkson said. “It’s exciting because it enables a green field in terms of building a distinct co-brand debit product that is differentiated from your competition.”
“That fosters an environment where you can test a lot of different things, like different day of travel benefits in the airline space, loyalty accelerators, and personalized offers. They are all designed to create a product that reinforces the emotional connection between the brand and the customer,” he said.
From Enrollment to Engagement
In the early days, many institutions viewed co-branded debit cards primarily as a down-sell product for consumers who could not qualify for credit. However, the convergence of debit usage, loyalty programs, and technology has dramatically expanded the footprint of these products.
“We’re working with a number of brands, and they don’t see this as a one-off, niche product,’” Dougherty said. “It is part of their overall strategy of both finished service products and engagement and revenue.”
As mentioned, while many brands have hesitated to embrace co-branded debit due to concerns about cannibalizing credit programs, the two are complementary offerings that can create significant synergies with an organization’s broader portfolio other offerings—provided they are designed and managed accordingly.
As organizations continue to recognize the value of debit products, co-branded debit cards are approaching an inflection point. Rather than viewing debit solely through the lens of enrollment, including how an organization can entice consumers to sign up for a card and use it, organizations are beginning to see it as a core engagement strategy.
The Preference Isn’t Disappearing
For financial institutions that remain on the fence, there are straightforward ways to determine whether a co-branded debit card is the right fit.
“A brand could pretty readily measure if you just look at your share of transactions on debit versus credit,” Clarkson said. “The cost of acceptance for any brand is going to be less typically on debit than it is on credit, just comparing the two to one another. Provided a brand sees more overall debit usage, that could be a good yardstick for how successful these programs will be a year or more from now.”
Along with the potential revenue gains, institutions should also consider engagement, and loyalty benefits a successful co-branded debit program can deliver, particularly among younger consumers.
“The financial services and co-brand industry has millennials at this point figured out. I think what we see now is that this product is attracting those from Gen Z,” Dunning said. “The whole component of creation was that nearly 70% of Gen Z already uses debit regularly and that preference is not disappearing.”
“Keeping an eye on all things with the younger generations is certainly attractive in our conversations with the brand. And what does Gen Alpha want next?” He said. “Those are the big pieces as we’re leveraging the data to drive the value prop, the add-ons, and the experience. All those things are top of mind for us every single day.”
