- The Washington Times - Monday, May 1, 2006


A trip to the islands for paying the water bill. Free coffee and pasta dinners for grocery shopping. A clothing store gift card for picking up dry cleaning.

Suddenly, mundane errands have gotten more rewarding.

A growing number of banks, looking to get more out of their existing customers, are offering “rewards” programs that allow consumers to accumulate points that can be cashed in for a variety of items. Rewards are given for such everyday tasks as writing checks, paying bills online and using debit cards.

The banks make money on more transaction fees and by getting customers to try new services.

National City Bank is the latest to join the rewards club with its new “Points” program that allows debit-card users to earn points for making transactions, writing checks and opening accounts. The points can be cashed in for rewards ranging from a Starbucks latte (2,000 points for a $5 gift card) to a four-day Caribbean cruise (420,000 points).

The Cleveland bank could use the boost from fees. National City’s profits dropped 29 percent last year to $1.9 billion.

David Bowen, senior vice president for consumer and small-business deposits at National City, said banks must find creative ways to get more out of existing customers because there is little room for new customer growth, particularly at regional banks such as his. National City has 1,100 branches in the Midwest.

“We need to constantly be going out there. We can’t just ride the wave of population growth like some other cities,” he said.

Bank One, Bank of America and Citigroup Inc., the nation’s largest financial institution, have introduced similar consumer programs in the past year.

Greg McBride, an analyst for Bankrate Inc., said rewards programs represent a growing trend in the financial services industry even though they have been around at grocery stores and other retailers for a while.

“It was just a matter of time before loyalty programs found their way into financial services. From the bank’s perspective, the idea is to make your bank the consumer’s first choice for additional needs,” he said.

Tracey Mills, a spokeswoman the American Bankers Association in Washington, D.C., said the goal is to increase business with existing customers, who typically use different banks for different kinds of accounts.

Banks are using rewards programs and other initiatives such as personalized banking to push customers to have two or more relationships at one bank — a checking and savings account plus a home loan, for example.

Those customers “have more loyalty so they’re less likely to switch banks,” Ms. Mills said. “It’s also more expensive to find a new customer than it is to market to the current customer, so it’s a cost-effective way to grow business.”

Jan Hartman, a Medina, Ohio, customer with National City, said she realizes the bank is trying to make more money from her, but that the program is a good idea because she earns points for tasks she would be doing anyway.

“It’s better than using your card and getting nothing,” she said.

Ms. Hartman said she is aiming for the free cruise by using her debit card and checking account.

It might take awhile. She said she has no need to sign up for new services or accounts tied to National City’s biggest rewards, such as a 5,000-point bonus for opening a home equity credit line.

Instead, she will accumulate points based on her routine banking — 40 for a $20 debit-card purchase that requires a signature rather than a personal identification number, for example.

Ed Mierzwinski, consumer program director for Washington, D.C.-based U.S. Public Interest Research Group, said encouraging more debit-card use instead of cash is not a good thing. Banks usually earn between 1 percent and 2 percent of the purchase price in transaction fees.

“Banks use rewards programs to switch consumers from paying with cash to paying with plastic so that the banks can earn more fees from merchants.

The result is that all consumers pay more at the store and more at the pump as merchants increase prices to pay their own growing fees to banks for accepting cards,” Mr. Mierzwinski said.

Citigroup, Citibank’s parent, offers customers “Thank You Points” — one reward point for every $2 used from a debit card linked to a checking account and one point for every $3 on purchases that require use of a personal identification number.

The bank allows customers to link their credit cards to the program and offers bonus points for loans, savings accounts and other products and services.

Bank of America Corp.’s “Keep the Change” is slightly different. Instead of points for prizes, the Charlotte, N.C., bank allows customers to round up their debit-card purchases to the nearest dollar and put the change into an interest-earning savings account.

The bank will match savings, limited to $250 a year, dollar for dollar for the first three months. After that, it will match 5 percent of annual savings.

The banks say their motivation is increased business, loyalty and a genuine attempt to make banking more fun.

“It creates a little more excitement and a little more energy in some otherwise boring products,” said Mr. Bowen of National City.

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