If you think your bank’s CEO lies awake at night thinking of ways to take away your customer perks, here’s a surprise: debit rewards are coming back. Sort of. Bank of America is testing a pilot of a new merchant-funded reward program called BankAmeriDeals, in which rewards come in the form of special Groupon-like discounts on purchases from major retailers. The customer’s “rewards” show up as bank statement credits at the end of every month.
Here’s how the program works: A company called Cardlytics first acts as a middleman between BofA and retailers. Based on a BofA cardholder’s shopping history, the customer will be offered discounts off future purchases from stores where he or she regularly shops, or perhaps is likely to shop. For example, say you buy your kid back-to-school clothes at a major discount chain. When you check your BofA account activity online, you may see that store is offering you a 10% discount on your next purchase. You select that deal, then when you make your next purchase with a Bank of America card, you’ll pay full price and BofA will issue you a statement credit for the amount of the discount at the end of the month. No coupons, promotional codes, or e-mail registrations are necessary.
BofA is testing the service, dubbed BankAmeriDeals, on its own employees in Nevada and the Carolinas starting today, and it will roll it out to all associates next month.
“This provides our customers with a convenient way to get cash back on the stores they already shop at,” is how Bank of America spokeswoman Tara Burke characterizes the program. “It sends them relevant offers” based on their purchase history, she says, which is quite different than the random discounts that appear regularly in daily deal subscriber in-boxes. Burke wouldn’t say when BankAmeriDeals will be available to all customers, but bank card analysts speculate BofA is gearing up for a summer launch.
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Burke says that when BankAmeriDeals goes live, all checking account holders will be automatically enrolled. A Reuters report about the new program says BofA has promised not to share customer data with third parties like retailers, though.
Customers will have the choice to opt out of the deals program if they want, but Dennis Moroney, research director for bank cards at consulting firm TowerGroup, thinks most customers will want to participate. “Once you start to demonstrate the value to the consumer, they’re going to want this any place they use the card,” he says. “With 8.5% unemployment, people are always looking for a way to save a couple of bucks.”
Merchant-funded reward programs like BankAmeriDeals have become increasingly popular among credit card issuers, and some providers have been making inroads into offering these discounts for debit card users, as well, but Bank of America is the biggest bank to enter the arena. Think of BankAmeriDeals as a high-tech version of the machine that spits out coupons at the supermarket cash register based on your purchases that day.
“I think it’s part of a renaissance of what’s going on in retailing,” says Moroney. Merchants have to pay less in debit interchange now, he points out, so they can afford to offer these reward programs to try and boost sales.
The big difference between BankAmeriDeals and most other reward programs is that the discounts apply to future purchases. Because of the program’s payoff structure, both retailers and the bank have reason to hope deals will motivate customers to spend again and again with their cards, resulting in more revenues for the store and more interchange fees for the bank.
(MORE: Bank of America’s $5 Debit Fee Led to More Account Closings, CEO Says)
Moroney predicts that when the full rollout of BankAmeriDeals comes, it will include a mobile app so customers can check for any discounts while they’re out shopping. He also says customers could see apparel stores, electronics retailers and even chain restaurants participating in BofA’s deal program. “I think it runs the gamut,” he says. “I think it’s important that they get as much participation across the merchant base as they can.”
He adds that, in light of BofA’s recent debit card fiasco, in which an attempt to start charging a $5 monthly fee caused a 20% increase in customer accounts being closed, the bank is doing the right thing by taking its time rolling out this new offering.
“They really can’t afford another gaffe. I think that’s very prudent on their part” to test it extensively, he says.