Credit or Debit?

How will the credit card industry be transformed, given rising charge-off rates and the credit card bill of rights that is expected to go to the White House this week? Some analysts are predicting higher APRs, more fees and less rewards for all credit card holders – even the (good) transactors who pay off their balance each month.

While card issuers will attempt to balance their costs with their profit through rates and fees, it seems uncertain that they will do so while not losing some of their best customers. However, rates have already begun to creep up, and many customers already feeling the pinch are starting to turn away from their credit cards to their debit cards.

This shift to debit may turn out to be good news for customers and banks alike, especially those banks that have extended rewards to debit card users to create deeper “enterprise” relationships. EMI research shows that approximately 25% of debit cardholders are already earning rewards on their debit transactions. And given America’s recent shift to thrift, we can expect to see more banks offering debit rewards to their customers to help encourage greater consumer spending and deepen the increasingly important relationship.

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