Reward card interchange for debit

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.