I have started to do some research regarding U.S. debit card rewards. There’s a lot to dig into:
- Smaller financial institutions exempt from Durbin interchange caps are using their revenue advantage to fund richer rewards, often as cash-back, consumers’ favorite type of reward.
- Larger financial institutions watching the ROI on their rewards programs are tweaking the rewards offerings to favor merchant provided rewards and expanding the program to include not just debit card transactions but other account activities.
- Decoupled debit aka, private label debit is always accompanied by a transaction based reward and is making an impact on the market.
Bloomberg reports on a new twist; card rewards that offer company stock as the benefit:
The New York-based personal finance and investing startup (Stash Financial Inc.) plans to announce on Tuesday a new “stock-back” feature on Stash debit cards.
The pitch: Next time you shop at Amazon, pay your Netflix Inc. bill or pick up groceries from Kroger Co., rather than earning cash back, you’ll earn fractions of shares of the companies’ stock. The rewards start at 0.125 percent of spending, less than some other cash-back credit cards, though the company said the rate could reach as much as 5 percent depending on deals and promotions. For purchases at, say, a local restaurant that doesn’t trade on the public markets, customers will earn shares in a related exchange-traded fund.
I like the idea, because it’s a reward with staying power. Users will see the accumulation of stock ownership and hopefully growth of their holdings and be reminded of the benefit received. Cash rewards are quickly forgotten once used. It also fits well with Stash’s philosophy around teaching financial discipline:
“And stock rewards, unlike airline miles, are less likely to induce additional shopping, the company points out. Stash’s idea—promoting financial restraint to boost spending on its cards—might be just backwards enough to get some attention.”
But if there isn’t real value that adds up to a meaningful portfolio of stock ownership, this experiment could be a dud.
Overview by Sarah Grotta, Director, Debit and Alternative Products Advisory Group