Reward points for debit cards have largely fallen out of favor in the U.S. since Dodd-Frank passed in 2010, but fintech Revolut is reviving them in Australia. The company says this is the first time Australian consumers can earn rewards on debit card purchases.
Revolut’s new debit card features multiple earnings tiers through its proprietary RevPoints rewards system. The company launched a similar card in Europe in April.
Losing Interchange Fees
The offering arose from potential changes in Australia’s payment regulations. Credit card reward programs are typically funded through interchange fees. In the U.S., Dodd-Frank placed a cap on debit interchange fees, making it difficult for issuers to sustain reward programs from the reduced income.
Australia’s central bank is considering a similar move, which would ban customer surcharges on card payments and lower interchange fees. Local banks have warned that such changes could force them to scale back or eliminate reward programs to offset the loss of interchange revenue. Revolut Australia chief executive Matt Baxby said the prospect of banks cutting back on rewards has created an opportunity for an alternative in the market.
“Interchange is a big component to funding these programs, but another component is the annual fee to belong to a loyalty tier, which is the way Revolut is handling it,” said Ben Danner, Senior Analyst, Credit and Commercial at Javelin Strategy & Research. “Revolut is doing issuer funded rewards by having a points program akin to what a credit card would do. They are essentially footing the bill for the rewards program, which is why they need to charge account fees. Running a robust debit rewards program on tiny debit interchange fees is expensive.”
Scarce in the U.S.
Debit cards that earn rewards are scarce in the U.S., but a handful have been introduced in recent years. Earlier this year, Wyndham Hotels rolled out its own rewards debit card, targeted specifically at younger travelers. One recent trend is for peer-to-peer services like PayPal and Venmo to offer rewards cards as a way to attract more customers by creating a bank-like experience.
“A debit card is sticky, physical thing that ties customers to a financial institution,” said Danner. “It also gives users a physical way to use their PayPal or Venmo balances.”
