In their bids to build consumer loyalty, credit card issuers have continued to one-up each other with attractive perks and exclusive benefits. And yet, debit card loyalty programs have largely remained an afterthought.
Much of this comes down to regulation. In the U.S., the Durbin Amendment capped interchange fees on many debit card transactions, limiting a key source of funding for rewards programs. As a result, many banks scaled back or abandoned their debit rewards efforts.
However, as Ben Danner, Senior Debit Analyst at Javelin Strategy & Research, detailed in the Turning Everyday Debit Into Deeper Loyalty Through Rewards report, major card issuers have found new ways to use debit products to drive loyalty.
Rather than relying on interchange revenue, these institutions have adopted a relationship-based approach to banking. The goal is to turn an everyday spending tool into a way to deepen customer relationships, especially among younger generations.
Building Merchant Synergy
A key component of this strategy is account-based rewards. These include tiered loyalty programs that offer higher cash back rates to customers who maintain direct deposit, carry higher balances, or sign up for multiple products.
Some institutions also tie rewards to card usage, increasing cash back percentages as customers reach monthly transaction or spending thresholds.
Card-linked offers provide another avenue for rewards, often funded by merchants looking to drive sales. For example, a bank might offer cash back to customers who spend $50 at a particular restaurant. The arrangement benefits the merchant by encouraging incremental spending while giving access to the bank’s customer base and transaction insights.
For banks, merchant-funded offers provide a way to deliver rewards on debit products that generate relatively little interchange revenue.
“Looking through our data, all of the large issuers have merchant-funded offers on their programs,” Danner said. “A majority of consumers belong to one of those large banks or have a debit card with one of those large banks, and it’s a table stakes thing to have merchant-funded rewards. They don’t necessarily generate a lot of money for the issuer, but they’re good at bringing customers into their mobile app.”
Targeting the Right Offers
Encouraging debit card usage is important because debit is often among the first products customers acquire from their financial institution. Its everyday use also gives banks valuable insights into consumer spending habits—data they can use to tailor merchant-funded offers to individual preferences.
But personalization alone doesn’t guarantee success. Card-linked offers can still miss the mark when they fail to align with consumers’ interests or spending habits.
“If they presented an offer to me with a grocery store and it’s not even in my state, obviously that is a failure, and that happens when you’re not doing the analytics that you should be in your program and you’re offering these high-level rewards to everyone,” Danner said. “That’s why things like personalization are important, because if you want customers to go to a store, the store needs to be in their area first.”
Understanding Generational Dynamics
Relevance is only part of the challenge. Many consumers remain unaware that their debit cards offer rewards, including longtime users who remember an era when traditional debit rewards programs were more common.
Even among consumers who know these programs exist, some perceive the offers as coupons or discount codes rather than rewards in their own right.
Awareness and perceptions can also vary by generation. Younger consumers, like Gen Z and millennials, may be more familiar with rewards tied to debit spending. For financial institutions, this creates an opportunity to clarify what their programs offer and how customers can benefit from them.
“It’s interesting looking at these generational dynamics on what the awareness is and how people perceive what a reward is,” Danner said. “It shows this interesting disconnect philosophically between what they think is a reward and what isn’t a reward.”
“I suspect that if you pull the fair amount of the older generation of people that typically aren’t using or spending a whole lot of time in the app, they probably don’t even know that they have merchant-funded offers to activate,” he said.
Making Rewards a Priority
These awareness gaps underscore the importance of communication. To get the most out of their loyalty initiatives, banks should make tiered rewards and merchant-funded offers more visible across customer touchpoints, from mobile banking apps and websites to in-brand interactions.
And while loyalty initiatives often focus on attracting new customers, keeping existing customers informed about available rewards is equally important.
“If they’ve been a longtime customer, they might not be getting the marketing messaging that a newer customer might get when they first sign up,” Danner said. “It’s important, not blasting people, but reminding them that they have these offers on their account. Many don’t even know that their accounts had these. These are folks that probably signed up for their debit card 15 or 20 years ago.”
When calibrated correctly, debit card programs can become powerful retention tools. They can encourage card spending and increase engagement with mobile banking apps, creating more opportunities for banks to cross-sell customers on other, potentially more profitable products.
Ultimately, the humble debit card has significant potential to strengthen customer relationships and support revenue growth. Realizing that potential, however, depends on making rewards relevant, visible, and easy to use.
“Think of these merchant-funded offers as rewards, because particularly younger generations think of them as rewards,” Danner said. “You could probably use them as an acquisition tool in the sense of saying, ‘Your debit card isn’t just a debit card, it’s also powered with these merchant-funded offers.”
“But the real meat and potatoes of the merchant-funded offers is using them as more of a retention tool and a way for them to keep customers engaged within their app experience,” he said.
