Faced with new credit card restrictions, lenders are touting debit card loyalty programs. But many come with fees that may not be worth it for consumers.
-- Could debit cards be the next cash cow for banks? If banks have their way, they will.
Americans have conducted more transactions and spent more money using debit cards than credit cards this year -- the first time that's ever happened.
Next year, consumers are expected to spend $1.64 trillion with their debit cards, nearly two-thirds more than in 2006, according to the payments industry trade publication The Nilson Report.
And there is no indication this growth is slowing down anytime soon. Not only are Americans increasingly reluctant to take on more debt, but banks are expected to become more stingy with credit cards once new federal legislation takes effect next year, which could make the debit card the preferred form of payment for many consumers.
This hasn't gone unnoticed by large and small banks, who are currently looking for ways to wring any extra dollars out of their business at a time of severe loan losses.
"Banks, just like airlines and local governments, are looking for fee income to fill the revenue gap," said Greg McBride, senior financial analyst with Bankrate.com.
What is shaping up to be an area of focus for lenders are loyalty or rewards programs for debit card users.
A concept that has long been associated with credit cards, increasing numbers of banks have looked to such programs as a way to generate more fees from consumers.
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Atlanta-based lender SunTrust (STI, Fortune 500), for example, launched a tiered series of travel debit cards in June that allow consumer and business account holders to earn miles with Delta Air Lines.
Just this month, Wells Fargo (WFC, Fortune 500) expanded its Cash Back program, saying it would allow customers to apply their debit card rewards toward paying down their home equity loan.
And Minneapolis-based U.S. Bancorp (USB, Fortune 500), which has offered debit card rewards as early as 2002, announced last week it was now making its own FlexPerks program, which allows cardholders to earn travel, cash or merchandise rewards, available to many of its consumer and small business account holders.
"We do find our customers are very interested in earning something," said Lynn Heitman, senior vice-president for retail payment solutions at U.S. Bancorp.
Of course, consumers don't necessarily have to pay for the privilege of having, or using, a debit card. Or at least not upfront.
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