Debit card rewards programs were on an upswing before the Durbin Amendment of 2010, but stalled and fell over the subsequent few years due to downward pressure on interchange. Over the last year or two, debit card issuers have embraced debit rewards programs and these programs have grown nicely. Development of local merchant-based rewards programs have captured the interest of credit unions and community banks. Buzz Points, a merchant-funded loyalty program that rewards consumers for shopping with their debit card locally, is a leading example of the type of program that is gaining momentum. Participants in Buzz Points, which is free to the consumer, earns points for every debit-card transaction completed – and incremental points are awarded if the transactions are made at one of 7500 merchants that participate in the program. The benefits of Buzz Points to financial institution stems from building relationships in the community, incidents shopping with the debit card at local merchants leading to increased debit spend and revenue, and implementation of a fully-supported merchant recruitment and consumer marketing program. Merchants benefit from the program through increased customer awareness, increased spend, and building relationships in the community. But participation in the program comes at a price.
“Merchant and financial institutions alike pay to participate in the Buzz Points program. (Buzz Points CEO) Jay Valanju says the amount is based on the number of active debit cards at the institution, although he assures that for the vast majority of the company’s credit union and bank clients “we write them a check larger than the one they write us.”
According to Buzz Points, a smaller financial institution (under $10 billion in assets) usually generates $96 per year per debit card. With Buzz Points, financial institutions can see an increase to $160-$180 per debit card per year. For larger financial institutions earning about $54 per debit card per year, with Buzz Points that earnings level can increase to $80-$90 per debit card per year. In addition, up to 30% of participating local merchants move their commercial banking business over to the financial institution partnering on Buzz Points.
Consumers are in favor of reward programs on their debit cards. Participation in merchant-funded rewards programs by financial institutions are gaining over traditional points-based debit card rewards programs. The number of merchant-funded rewards program managers have risen over the past few years, but recently participation of larger national merchants have begun to waiver. Merchants often view these programs as advertising dollar trade-offs against other forms of consumer advertising (television, print, direct mail, couponing). Recently, Freemonee.com was shuttered due to merchant participation issues. Smaller, local merchant programs have less sensitivity if a handful of merchants drop-out as opposed to larger, national programs with large merchant participation that might see some merchant attrition. However, from our vantage point the local merchant-based programs are perfectly suited to credit unions and community banks, and Buzz Points has the elements to contribute to a solid rewards program.
Overview by Ron Mazursky, Director, Debit Advisory Services
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