With growing debit card usage, and few rewards programs with meaningful payment bonuses (note 1), the market seems right for a focused debit-card-rewards provider.

But the market has not evolved as fast as many thought. Capital One threw in the towel on its decoupled debit rewards program. Finovate alum (video here) Tempo Payments is refocusing on affinity-branded cards, which often have a reward component paid for by the affinity partner.

But a new entrant, PerkStreet Financial (powered by The Bancorp Bank) may have the right answer: reward levels on par with credit-card programs, 1% of spending value, 4x the average debit card program (note 1). The company emphasizes rewards paid via free coffee (nice tie-in to the name), music downloads (going after the youth market), or gift cards from name-brand retailers (adds retail interest to the account). See the first screenshot.

But with lower interchange, and no monthly fee (note 2), how can a bank afford such high rewards?

• No branches
• Rewards paid out on retail stored-value cards which are provided to the bank by retailers at prices less than face value
• $30 overdraft charges (but it's OPT-IN optional)

$50 new-account bonus: If you navigate directly to the website, there is no new account bonus (see screenshot 2). But if you use Google, it's hard to miss PerkStreet's ad (screenshot 3) or the affiliate deals. Going to the site through those options earns you a $50 bonus (screenshot 4), and in the case of the Google ad, an additional $50 qualified satisfaction guarantee (screenshot 5). 

1. PerkStreet perks page (link; 2 Dec 2009)

2. Standard homepage with no offer, emphasizing free

3. Google search for "PerkStreet Financial" (2 Dec 2009, 5:30 PM Pacific from Seattle IP address)

4. PerkStreet homepage accessed via affiliate (Doughroller link)
$50 bonus with $25 opening deposit and three months of activity

5. Landing page offer (link, 2 Dec 2009)
$50 bonus now with direct deposit, and $50 more if not satisfied within eight months.
To qualify as not satisfied, you must have set up direct deposit within 60 days of account opening, made 10 or more debit transactions per month for six straight months, and have closed your account within eight months of opening.

Notes:
1. According to the fine print disclosures on PerkStreet's homepage, 17% of debit cards provide rewards with an average value of 0.23% of spending (source cited: BAI/Hitachi 2008 Study of Consumer Payment Preferences).
2. The account has a monthly fee ($4.50) only if there is no activity.

One thing about operating in competitive markets, when one player hits on a good idea, it's not long before others follow suit.

It looks like National City <nationalcity.com> wins the honor of first-to-copy-Citi-Thankyou-Points. The Cleveland-based bank today unveiled its comprehensive Points program <nationalcity.com/points> with a multi-media barrage including television, print, billboard, and transit ads. Its website includes a large, animated points-gathering graphic in the upper right (see the series below).

With rewards ranging from a $5 Starbucks card (2000 points) to cruises (420,000 points), there is something for everyone. The standard domestic round-trip air ticket runs 100,000 points. The program covers both personal and business accounts allowing, according to the company, a typical business owner to amass 140,000 points per year across both personal and business accounts.

The program revolves around spending, paying two points per $1 spent on a National City credit, signature debit card, or line of credit. Card customers can also earn five points per dollar once they surpass $5000 in annual spending, enough to earn round-trip airfare with every $20,000 spent.

Checking account customers also earn 25 points per bill payment, PIN-debit purchase, paper check, or direct debit (ACH) transaction. The 25-point transactions are capped at 500 points per month, the equivalent of $250 in credit card spending. There are also 5000-point bonuses for new accounts including online bill payment (click on the table for details). 

Analysis
While the program is primarily a card-based rewards program, it's good to see online bill payment included, even at minimal points levels. A typical household paying eight bills online per month would earn enough for a grande mocha at Starbucks, about once every 10 or 11 months. It's not a lot, but we believe it's enough to matter, especially combined with the other reward opportunities.

However, we believe the bank erred in including paper checks in the program. Clearly, the points are about rewarding the use of electronic payments and transactions, especially those that lead to credit balances. In throwing a bone to traditional check writers, the bank eliminates much of the incentive to migrate transactions to electronic channels, since the 500-point monthly cap means that once someone writes 20 paper checks (at 25 points each), there are essentially no points for electronic transactions.

Users can sign up for a monthly email update on their points balance. The bank makes it easy with a one-line entry form on the main "Points" page (click on inset for a closeup). After inputting their email address, users are sent to a short form to add their full name and card number.

For more information on rewards programs, click here for previous NetBanker articles.

Increased competition, both online and at the branch level, has forced banks to consider a wide range of strategies for customer attraction and retention. One such strategy developed by Rennhack Marketing Services (RMS) <rennhack.com> leverages current technology to supercharge the old-fashioned free toaster concept.

In recent years, many banks have tempted consumers to open new accounts by giving away iPods, DVD players, and even free travel or cash incentives. While effective at bringing in new accounts, there seems to be less evidence to suggest that this approach does anything for customer retention over the long term. The RMS Banking Bonus program is intended to boost business and increase retention by rewarding both customers and employees for a range of activities.

First, each time an employee signs up a new customer, that employee is awarded points on the online system. By logging in to the RMS website, the employee can redeem their points online for gift cards, merchandise, or other services. Points are also awarded to employees for a range of business-generating activities, such as helping an existing customer apply for a credit card or open additional accounts.

Second, an additional and perhaps more powerful aspect of the program is that banks can also offer the same incentives to new or existing customers. By awarding points for enrollment in add-on services like direct deposit or automatic bill pay, banks can streamline service delivery and increase customer retention in one fell swoop. As an added bonus for customers and banks alike, participants can also win points by referring family and friends to open new accounts. In support of these initiatives, RMS offers banks a customizable online interface as part of the Banking Bonus system that can be bank branded for both customer and employee use.

RMS offers a large variety of products and consumer brands meant to provide the strongest incentives. Over 380 brands are represented in the system. Merchandise, gift cards, and “personal leisure rewards” from companies like Callaway Golf, Godiva, Dell Computer, and Walt Disney World are currently available to participants in the program.

Definition: loy·al  (loil) adj. Steadfast in allegiance

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When I was a graduate student 17 years ago, I did a lot of research into so-called loyalty programs. At that time, other than the airlines and grocery stores (think S&H Green Stamps); it was a relatively new concept.

Now, just about every modern retailer has a loyalty program of one form or another, from pizza joints (our favorite spot has a “frequent pier” discount), to book stores ($25 annual fee for at 10% discount at Barnes & Noble), and even pet stores. The programs typically provide discounts, VIP services, and/or special programs for frequent customers.

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Many financial institutions provide loyalty features such as relationship pricing, rewards for credit/debit card usage, personal bankers, and events for high-net-worth clients. But Citibank is breaking new ground with its Thank-You Points program.

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The new rewards program has been featured in media campaigns for the past several months (thank you Citibank for focusing on the positive rather than continuing to over-publicize the identify theft problem). The program delivers points both for the depth of the Citi relationship and the amount of debit card spending. Spending on the many of the bank's credit cards, including the new Simplicity card, also count for points.

Debit card spending is straightforward, earning 1 point for every $2 spent on signature debit and 1 point for every $3 spent on PIN debit. Credit card spending earns 1 point per dollar.

Relationship points are earned for anyone having 3 or more accounts with the bank, and range from 25 points per month with 3 products and a Citibank Access checking account to 1200 points per month for someone with 7 or more products and a CitiGold Account (click on inset for more detailed information). An online tool is available to help users estimate the reward points they will accrue.

Customers are NOT automatically enrolled; they must call a toll-free number to enroll. There is no online enrollment option. Points can be redeemed by phone or through a dedicated website, <ThankYouRedemptions.com> which is currently closed for remodeling and due to reopen next week.

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Example rewards:

• 20G iPod = 50,000 points
• round-trip coach air fare = 25,000 points
• make a wish = 25,000 minimum
• gift certificates: $5 = 1000 points; $10 = 1500 points; $25 = 3000; or $10 per thousand for larger amounts

Analysis
Loyalty programs can have a significant impact on customer retention and purchase behavior. However, the programs have three inherent problems:

1. Cost of communicating the incentives and member reward status
2. Consumer disinterest/apathy/fatigue with the program
3. Cost of the incentives

Online delivery helps solve the first two problems. With email and web-based delivery the cost to communicate the details of the loyalty program are negligible, other than the fixed cost to create the communication. Second, the program can be kept fresh with continual feedback to the user when logged in to online banking. A progress chart along and program news serves as a constant reminder of the program benefits.

However, online delivery does little itself to impact the cost of the incentives. In fact, by making it easier to track and redeem rewards, you may be actual increase incentive costs due to higher redemption levels. On the other hand, if you increase interest and awareness, you may be able to get equivalent lift from lower-cost rewards.

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The final word: Online delivery has the potential to greatly increase the impact of bank loyalty programs. So, expect other major banks to enact programs similar to Citi's. If you have a loyalty program, you may want to look at how it's delivered online. If you are not doing anything to systematically reward your best customers, you may want to add this to your 2006/2007 plans.

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--JB

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Reference: Citi ThankYouRewards screenshot (links do not work)

Is banking ever fun? Not really. The best you can hope for is that it's "pleasant."

How about online banking? It might have been classified as fun the first couple times you tried it, but it's not fun anymore unless you happen to have lots of money piling up in your account.

Is it possible to keep it fun? Yes, but you'll have to continuously innovate. As Seth Godin points out in Free Prize Inside: The Next BIG Marketing Idea, "The price of WOW keeps rising." In other words, what impressed your customers today, no longer impresses them tomorrow.

One innovation that we'd like to see more widely used is rewards programs for online delivery. It doesn't have to be as expensive as frequent flier programs, more like the free Cokes you can win from time-to-time under the bottle cap.

Examples
1. ING Direct has a monthly raffle for its customers who have opted to receive email statements (which automatically shuts off the paper). Every quarter one of its 2 million customers wins a plasma TV, another wins a laptop, and a third wins a digital camera or portable DVD player. The total prize pool is about $5,000 per quarter, which amounts to one cent per customer per year, less than 1/500 of the cost of mailing a monthly statement.

2. PFF Bank & Trust (Pomona, CA) is running a bill payment usage sweeps during the first three months of the year. The promotion is advertised with eye- catching graphics on its home page. Every time a customer pays a bill they are entered into the sweepstakes for a cool electronic "toy," January is the iPod (of course), February is a digital camera and printer, and March is a 19" LCD television. The total prize pool is just $2000 for the entire promotion.

-- JB

Unless you are a KeyCorp or Chase Manhattan, you won’t be displaying your logo on the first page of one of the most successful e-commerce ventures to date, Auto-By-Tel. Or will you?

Financing is a prominent feature on Auto-By-Tel’s first page  www.autobytel.com

Auto-By-Tel is one of many Web merchants that is using the power of the Web to offer low-cost co-branding opportunities. Here is how it works. Banks or credit unions post a link to Auto-By-Tel for members interested in purchasing a new or used automobile. When the time comes for the user to purchase a car, they are sent back to the financial institution’s Web for financing, with Auto-By-Tel snagging a $25 commission on the deal. It’s a win-win arrangement. You’ve provided a valuable resource to your members without losing the financing opportunity. Auto-By-Tel picks up the car sale and a commission on the financing. Silver State Schools FCU www.sssfcu.org  is one of the first financial institutions to sign on to the new program.

The credit card world is full of examples of co-branding. We are just starting to see these programs sprout on the Web. One of the more aggressively marketed programs is the TicketMaster MasterCard issued by First USA. The card is promoted on TicketMaster’s Web  www.ticketmaster.com and features a 5.9% intro APR, no annual fee, TicketMaster Rewards, and a $20 gift certificate with first use. Oddly, there is no online sign-up. Users must call a toll-free number to apply. (When I tested the number one Sunday afternoon, the rep I spoke with hadn’t even heard of TicketMaster, but she did confirm it was First USA.)

First USA/TicketMaster co-branded card is promoted with banner ads throughout the TicketMaster Web.