Friday, July 18, 2008

Banks offer cash back on debit cards to promote spends

Debit cards have various advantages over a credit card. When you use debit card there is no fear of overspending and no penalty and interest charges for late payments, as is in the case of credit cards. Therefore more and more people prefer using debit card.

Currently banks are offering a cash back facility on debit cards in order to encourage customers to use more of the plastic money.

On using debit card customers can avail themselves of up to ten per cent cash back (the percentage varies from bank to bank), which are directly linked to the account.

Senior bank official said receiving cash back on debit card is therefore a better offer for the customer.

Usually such schemes are announced by the banks during the festive season, although some banks have such schemes running throughout the year. In some cases some of the banks offer it on specific categories of purchase or spend, such as on fuel recharge.

However banks do not give cash back offer on ATM withdrawals and Internet transactions. According to Mr Sai Narain CDK, Head – Consumer Transaction Banking & Strategic Initiatives, Standard Chartered Bank, India, “Consumer research pointed to dissatisfaction with existing reward points and redemption program that offered exchange of rewards points with products. Consumers are more interested in instant gratification.”

Standard Chartered round the year give thematic cash back offer to its customers. “Double the rewards points — implying double the cash back has been the most successful promotion,” said Mr Narain. He said last year bank has seen a 30 per cent increase in customer spends on debit cards because of these promotions.

A senior bank official at a private bank, explained for banks, higher spends means higher income from interchange fee. “If you can run a campaign of 2-3 months you can see spends increase by 10-20 per cent,” said Mr Sameer Nemavarkar, Vice-President, Retail Banking, Axis Bank.

Another private bank, Axis Bank offers cash back schemes for certain segment such as for spends on fuel. Mr Nemavarkar, explained that giving such schemes on credit card is a high-risk high-return game and calls for efficient managing of the outstanding; that on debit card is more of an activation strategy.

“We had run a campaign on activation of new cards by offering a cash back of Rs 50 on a spend of Rs 1,000,” he said.

From 1st July State Bank of India and Barclays has announced cash back scheme and other banks are expected to follow suit. While SBI is giving 5 per cent cash back, Barclays is offering 10 per cent cash facility.

“10 per cent cash back offer will help us strengthen our relationship with our customers and enhance brand loyalty,” said Mr Suresh Gurumani, Director, Retail Banking, Barclays India.

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