Monday, April 16, 2007

Play your cards right

For years, banking customers have been reaping rewards for using their credit cards — frequent-flyer miles, discounts on vehicles and other consumer goods, and even cash back.

Called "loyalty programs," the trend is migrating over to debit cards as more and more people use them instead of credit cards.

Debit cards, also called check cards, are used just like credit cards, but draw money directly from your checking account, rather than building up debt or requiring repayment every month.

A recent Federal Reserve Board study revealed that debit cards account for one in three point-of-sale consumer transactions, compared with 21 percent in 1999.

According to a recent survey by MasterCard Worldwide, one-third of debit card users make payments with their debit card more than 16 times a month, including at the point of sale, online or to pay bills.

At Visa USA, debit card purchases make up a whopping 68 percent of the company’s transactions, and 50 percent of its dollar volume.

Many people use debit cards because they offer the speed and convenience of a credit card without incurring interest debt. Now an escalating battle over debit reward programs is giving consumers another reason to switch. More than a third of all debit card issuers now offer some type of rewards program, and that number is rising daily.

One of the newer entrants is Citizens Bank, which unveiled its rewards program in its 13-state region last fall.

"It’s another connection with our customers," said Rich Barry, president and CEO of Citizens Bank of Connecticut. "It’s all about deepening your relationship with your customer, providing them with other services and opportunities. You can acquire new customers, and you also solidify relationships with existing customers in a very competitive environment."

Citizens Bank stepped up the competition by offering more than most banks to its debit card users: Besides earning one point for every dollar spent by debit card, Citizens Bank customers also may receive two points for every dollar spent on recurring transactions, such as monthly bills, via debit card.

Also, Citizens Bank offers customers up to 20 points for every dollar spent by debit card at a wide variety of participating merchants, both online and in-store. The Citizens program offers the largest "bricks and mortar" network in the nation, including Dunkin’ Donuts, Eddie Bauer, FAO Schwartz, Hollywood Video, Macy’s, Restoration Hardware, Sharper Image, Timberland and other stores.

Wherever you bank, you need to be careful and read the fine print when it comes to rewards for using a debit card. That’s because most banks, including Citizens, require you to sign a receipt when using the card — i.e., use it as a credit card, even though the money still comes directly out of your checking account — rather than use a PIN number, in order to qualify for rewards. The reason is that merchants pay banks a flat fee when customers use a debit card, but pay a percentage of the purchase when customers use credit cards, which is more profitable for the banks.

If you hand a merchant a debit card and he or she asks "credit or debit?" you can say it’s a credit card and the merchant will handle it that way, but the bank will still treat your purchase as a debit card purchase.

Policies vary, though. At Chase Manhattan Bank, for instance, debit-card users earn one point for every $1 spent, but PIN purchases do not count. At Citibank, however, debit card users who sign the receipt slip earn one point for every $2 spent, and debit card users who punch in a PIN earn one point for every $3 spent.

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