Information on Merchant Accounts,
Ecommerce and Credit Card Processing

November 12th, 2007 by Jamie Estep

Reward card interchange for debit

Filed in: Merchant Accounts | 3 comments

This theory isn’t yet a fact, but now that banks (Capital One) are offering reward programs for debit cards, we can all assume that more/higher interchange rates are going to result.

Until now there were no rewards card programs for debit cards, which helped to reduce the price for businesses accepting debit cards from their customers. For some businesses, more than 50% of all transactions are from debit cards, which contributes a significant savings over time.

The effect of Capital One making a card like this, will likely result in banks offering similar rewards for their own debit cards. A similar Visa labeled card to compete with the Capital One card is also a likely future development. The combination of this cascade of debit card expenses, will likely drive both MasterCard and Visa to increase debit card interchange, and create additional debit rewards tiers. This could be the beginning of huge growth and change in the debit card market.

The Capital One Card:
This system stands to actually have a major impact on the processing industry, because the new Capital One Debit card is unique compared to any debit card in existence. The new capital one card can be linked to any bank account that offers ACH capabilities. What this essentially means is that a person can sign up for this new debit card, and not switch banks. If you personal bank doesn’t have a reward program for debit purchases, then the Capital One program would be a great card without any drawback for using it.

The catch is that if a person does not have a Capital One credit card, they must get a co-branded debit card, where the rewards can only be redeemed at the place of co-branding (Most likely a large retailer). Even with this inconvenience, it is still a much better program than any other debit card out there.

The uniqueness of this card in conjunction with mega-retailers brute-force marketing, gives this debit card the potential to get very popular, very fast.

The whole problem lies in consumers:
Rising interchange fees are almost always a result of consumer credit card trends, as rewards cards are one of the leading causes of higher interchange rates. Until consumers stop buying into reward cards, interchange can’t go anywhere but up. It’s ironic that the people who spend money at businesses, are also responsible for rising processing costs.

3 Responses to “Reward card interchange for debit”

  1. Will Black November 14, 2007 at 3:14 pm

    How true this is…

    The worst part to me with rewards cards has always been that the merchant carries the weight of it. If I have a Delta Sky Miles Card and go buy a pair of jeans at Old Navy, what happens? I get the jeans and the sky miles, Delta gets the glory, and Old Navy foots the bill. Which of course means that the cost of the jeans start going up to match the rate.

    Thank you for such a competent blog on the matter. I had started a blog on Merchant accounts called “Your Merchant Account Blog”, but I am so happy to see ‘The Merchant Account Blog’ out there really getting the information out.

  2. Melvin Pritchett November 19, 2007 at 10:55 pm

    I definitely agree with you…

    I think this new debit card is a great idea but it will definitely increase processing fees for merchants. Customers don’t know about processing fees and could care less. They only think about the rewards they are receiving.

    Thanks for the valuable information.

  3. horatio November 28, 2007 at 2:13 pm

    People more likely to have credit card then debit card. I agree debit card was an good idea to people who get blacklisted using credit card. But still remain same if doesn’t aggressively educate young people to use this. If im the banker manager, I will promote this card to youngster start 15 years old.

    my 2 cent.. 😉