Citizens to launch debit-card rewards

Programs proliferate as a way to build customer loyalty, raise fee income

Citizens Bank will roll out a frequent-flyer-style rewards program tomorrow for debit-card customers in New England and the mid-Atlantic states.

Similar programs have proliferated as debit-card use has risen and banks seek customer loyalty, analysts said. Bank of America Corp. launched its ``Keep the Change" program last year. TD Banknorth Inc. also has a rewards program.

Customers who enroll in the Citizens program will earn one point for every dollar spent on many debit-card purchases , so a customer who accumulates 30,000 points might redeem them for a $75 iTunes gift certificate. Consumers can sometimes earn bonus points, said Citizens, a subsidiary of Citizens Financial Group Inc. of Providence , the second-largest bank in Massachusetts.

``We call these everyday points because you get them for what you'd be doing anyway, like buying groceries or gas," said executive vice president Theresa McLaughlin .

Signature-only debit-card transactions qualify for rewards, but debit-card transactions that ask consumers to enter personal identification numbers, or PINs, do not.

At supermarket checkout lines, consumers might have the option of making a signature debit-card transaction or a PIN debit transaction. To make a signature transaction, consumers often have to hit the prompt for ``credit" when using card-swiping devices.

Most debit-card rewards programs exclude PIN sales because they generally yield lower fees for banks, said Tony Hayes , vice president of Dove Consulting of Boston, a payments consulting firm.

Fees that merchants pay for signature debit card transactions can equal 1.5 percent of the purchase price, versus about 0.5 percent on PIN transactions, he said; the discrepancy is a result of different groups' setting rates for different types of transactions.

``Banks prefer signature-based transactions," Hayes said. ``An increasing number of banks are sharing some of what they make on signature debit transactions with their cardholders through rewards programs."

McLaughlin said the Citizens program is designed to reward loyalty and provide convenience.

Debit cards have become popular as many consumers see them as a convenient way to control spending and avoid carrying large amounts of cash, said Frederick Lowe , editor of ATM & Debit News , an industry newsletter.

``Transaction volumes for debit cards will exceed transaction volumes for credit cards for the first time ever in 2006," said Lowe, who projects 26.6 billion debit card transactions in the United States in 2006.

Bank of America's ``Keep the Change" program rounds up to the nearest dollar the amounts of purchases made with the bank's debit card. The rounded amount is transferred from the customer's checking account to their savings account, and the bank matches the transfers up to $250 annually.

Chris Reidy can be reached at reidy@globe.com.