PricewaterhouseCoopers LLP published a paper “The New Digital Tipping Point” in late 2011. The report can be found here, and a blog post written by Chris Skinner providing insight to the post is worth a read. Many thanks to trusted colleague Richard Sanders to alerting me to this study.

PwC based the research on interviews with about 3,000 retail banking customers from a range of segments, and included samples from developing markets (China, India, Emirates) as well as developed markets (Canada, France, Poland).

The backdrop for the report is the residual impact of the global recession on the relationships consumers have with their banks. While consumers evidence less trust than ever for their bank, they also have changing expectations for how banking services (both offline and online) should be delivered.

In this case, “changing” translates to “greater expectations” and the report focuses on how the Millennial generation, finally arriving at a point where they will select their primary bank for the foreseeable future, are influenced by the way retailers are using digital strategies to engage and delight them online and in-store.

With this in mind, the PwC report puts forth the premise that there is a renewed opportunity for “banks to create shareholder value is through a focus on “relationship primacy” (being the preferred and main bank for a customer).” Why is relationship primacy so important?

1. According to PwC, it drives increased share of wallet, leading to higher revenue from that customer group, and ….
2. Research showed that 81% of Canadian customers surveyed preferred to purchase additional financial service products from their primary banking provider rather than any other source. Results were similar in Mexico 75%, India 77%, China 79% and UK 52%.

The learning is that banks “have them if they want them”. People are predisposed to stay where they are. Switching banks is neither easy nor fun. The question becomes, how can banks employ digital strategies and what should they consist of to engage consumers and seal the deal to retain “relationship primacy”? PwC concluded that banks need to develop digital strategy that goes beyond “building apps” and includes these key points:

1. User experience
2. Mobile devices and networks
3. Social media and collaboration
4. Customer analytics
5. Channel integration

The study found that customers are willing to pay for a new breed of banking services which transform the ordinary into a WOW moment when the information is delivered through a digital channel. These include receiving transaction notifications via via Twitter or Facebook, having availability of spending analysis tools, and receiving relevant third party promotional offers on occasion.

Loyalty was right in the middle of it all, as 65% of those surveyed in UK said they would be willing to pay for loyalty services provided by a bank and “storing loyalty cards and converting points to cash” were in the top 5 services noted by consumers. Consumers in the survey estimated an optimal price of £4.20 per month for loyalty services, a figure translating into additional annual fee income of about £50 per customer.

If banks take the hint and realize that the pot of gold they seek may just be in their own backyard, relationship primacy will be in the spotlight. In that case, data-driven customer strategies will receive even more attention as banks seek to rebuild lost trust, build engagement, and create a better value proposition for their customers.  Just remember that by executing a smart digital strategy and prioritizing relationship primacy, that banks can win not just with Millennials, but also the wider population of “Consumer 2.0″.

Whether transferring funds to a close friend or family member or remitting payment on a business invoice, we’ve all got to deal with the issues of money transfer. Payments are central to our lives and how we pay has cost implications for both the merchants we patronize and our own personal budgets.

Today I’m not only thinking about competition within traditional methods of payment, but also payment methods that come bundled with loyalty and social shopping applications.

Let’s look at the tradition payment space first. Within my network of highly mobile loyalty consultants, the Customer Strategy Network, we are fortunate to share project work and often move money between us as a result. I can remit payment to a colleague internationally via bank wire transfer, PayPal, or by check. Since bank hold policies on foreign checks border on ridiculous, wire transfer and PayPal seem to be the two best options.

One would think that wire transfer fees are more formidable than using PayPal, but interestingly enough, a transfer of  $2,500 from the bank costs $40 while using Paypal rings up a charge of about $157 (nearly 6%) if I link my Paypal account to a credit card, and closer to $75 (3%) if linked to a bank account. Just when we thought the banks were wringing out every last dollar from consumers following passage of the Durbin Amendment, PayPal is revealed to be generally more expensive to use.

Surprised? I was.

Next, consider payment methods tied into loyalty marketing schemes. Dwolla is actually the only one of which I am aware, and the innovative payment/loyalty group charges a fixed fee of $.25 per P2P money transfer or purchase transaction within its merchant network. That charge is normally paid by the payment recipient and doesn’t apply to transfers under $10. This of course would be a game changer in the payments sector, but only if Dwolla can enable payments outside of the US. Current restrictions on maximum transaction amounts are acceptable, but no payments are permitted outside of US borders. For the record, personal payments of $5,000 and business payments of $10,000 are allowed.

If Dwolla has aspirations to challenge PayPal and to become a payments solution beyond US borders, they will have to expand their model. For now, the low cost structure of domestic payments and embedded loyalty offers through the Spots program make Dwolla a better option than PayPal within the US. Using Dwolla Spots to locate merchants who accept the payment method and to be able to shop conveniently with local merchants even if you left your wallet at home is one of the big advantages of the program.

All you need is a GPS enabled Smartphone that allows you to find merchants and you can order and pay for purchases even before you enter the store.Imagine, the barista that not only knows your regular order but also has it waiting piping hot for you as you walk through the door, payment already completed. That’s got the makings of customer engagement and loyalty right there.

One other payment alternative linked to a loyalty program is the prepaid card. Starbucks and Dunkin’ Donuts each have put a prepaid card at the center of their loyalty programs. The downside of this model is that consumers must use the prepaid card for all purchases if they hope to earn loyalty credits. The upside is that Starbucks has added the convenience of being able to pay for purchases with a bar code provided in its mobile application (link) with the amount of purchase debited to the prepaid card account. Again, the convenience of being able to pay even when the wallet has been left at home, is something to consider.

With barcode technology widely available and NFC still needing some sorting, Starbucks has proven that low-tech (barcode) can be combined with high tech (mobile apps) to deliver convenience and to contribute to customer loyalty. The convergence of payment, mobile handsets and loyalty applications is not a concept on a PowerPoint slide anymore. It’s here before us, and becoming more of a reality every day.

I’ve long been a fan of Amazon and as proof carry an Amazon.com-branded Visa Rewards Card in my wallet. Sure, the interest rate is a few points higher than my primary credit card, but I’m a sucker for the points. I earn one for every dollar I spend and a whopping 3 points for every dollar spent on the Amazon site.

Over the past several years, the Amazon program worked like most others: you waited for your points to add up to a certain threshold, continually checking your balance online or on your monthly bill, and then ordered your reward. While there were a number of options, I always went for the $25 Amazon certificate available at 25,000 points.

But last month, something changed: while checking out, I noticed a small prompt about using my current point balance toward the payment of my order. Sure enough, I had earned 1693 points since my last cert was issued—and was able to apply a $16.93 credit to my purchase, right on the spot.

I mean, how convenient was that! No checking my points balance to see if I had reached the 25,000 point threshold, no ordering a certificate, no waiting 3-4 weeks for the cert to appear in the mail. I was able to get instant savings and in turn, instant gratification.

Now I can imagine this scares the bejesus out of some loyalty marketers because, having worked in hardcore points-based loyalty for several years, I know the philosophy. By forcing people to reach elevated point thresholds, you keep them as customers—because they have to stick around and make additional purchases to reach these thresholds, and are less likely to abandon their points for a competitor.

But you know what—the times in the loyalty marketing game are changing, with a mix of established and newer companies leading the charge. For example, check out the following recent developments:

• Marriott announced Marriott Rewards® Instant Redemption which enables members to redeem points on the spot at participating US hotels—for “dinner, cocktails, massage, golf…even a room upgrade…with no certificates, no waiting.”
• Location-based marketer Foursquare inked a deal with American Express to enable its 10 million cardholders to redeem location-based deals by swiping their AmEx card—giving them access to instant membership rewards.
• Online retailer Soap.com (as reported by Internet Retailer) rolled out “a customer loyalty program with a new twist. Instead of launching a traditional customer loyalty program that lets shoppers gather points…they reward customers with instant product discounts.”

I say it’s only a matter of time before all the traditional points-based loyalty marketers, including the airline programs, jump on the instant rewards bandwagon—or find themselves left behind by the competition. Sure, there may be a place for the hard-earned mega-point reward, but you better give your customers the option of quick and instant rewards and recognition.

What do you think?

We live in a world that tolerates, if not celebrates, grandiose celebration. Just read the last few press releases to hit your inbox and you’ll encounter a slew of exaggerated adjectives and hyperbole. “World’s best”, “Global Leader”, “robust and scalable” are just a few examples.

So when I saw the advertisement from Discover Card touting that “We are proud to have America’s #1 cash rewards program”, I decided to pause. The fine print below the ad supported the claim as follows “More U.S. households have a Discover card than any other cash rewards card”, this based on 2009 TNS Consumer Card Strategies Research.

Discover card’s brand is more closely associated with cash back rewards than any other and by their tenure in the market, I’m not disputing the claim. My question is whether banging the drum hard for cash back as the most popular and “best” form of card rewards program is compatible with a broader portfolio of rewards cards.

One of the early loyalty marketing firms had a slogan “We do one thing and we do it well”. It was printed on coffee cups and conference room doors as a reminder to staff and customers of the firm’s focus on loyalty marketing. It’s important to focus and there are many examples of businesses which fail as they cannot say “no” to a client request, commit themselves to projects outside of their core competency, and do not deliver to meet client expectations.

Being a “Jack of all trades” and master to none is a risk facing most business people in this frenetic information filled world. We are tempted to move in many directions and we have to decide where to focus our talents, resources, and available cash to get the best results for our own companies and our clients.

Discover card has focused on cash back, but looking deeper, you realize that their value proposition today goes well beyond cash back and includes travel, gift cards, merchandise, and charitable donation options.  In reality, when consumers sign up for a Discover card, are they seeking cash back or does the broader set of reward choices sweeten the pot?

I wrote a few months back about Bank of America’s promotional messaging in conjunction with the launch of its Cash Back card product. The bank described it as “Refreshingly simple. Rewards with no hoops to jump through”, reassuring customers that there are “No Hassle, no tricks, I know what I get, not like those other card reward programs”.

That message will ring true with Discover card cash back loyalists and I’m sure it drove acquisition of new cards at a time when consumers are weary of high interest rate cards and seeking to avoid revolving balances. It’s also a message that implicitly denies the value of other travel and rewards cards offered by Bank of America – unless of course BofA holds itself above the fray as all of its cards avoid “hoops, hassles, and tricks”.

My point is this: Cash back serves a specific market of consumers and is a great solution for many people. When issuers tout cash back to the detriment of the balance of their card portfolio, or really have a cash back card that’s lots more than “just cash back”, they send a mixed message to the market.

Cash back should be marketed as a “good” offer, not the “best”. In reality cash back offers are truly rewards, not loyalty programs as they are the ultimate example of earning a deferred discount on spending, nothing more, nothing less.

Maybe it is better to “do one thing and do it well”.

If you have thick skin, you’ll do just fine as a banker. I know, I walked in the moccasins for about 10 years.

As economic cycles come and go, consumer confidence and trust in large financial institutions varies, but the range of difference bounces between “low and lower”. The American Banker Magazine (nicely relaunched recently and worth a read if you follow the industry) carried a short article reporting on the results of the 2011 American Banker/Reputation Institute survey.

The good news is that bank reputation scores improved between 2010 and 2011, with banks jumping up 2 spots and leaping ahead of telecommunications and energy firms. The bad news is that the improvement was from next to last in 2010 to 14th of 17 industries ranked in 2011.

Looking into the components of the reputation score, researchers noted that the impact of products and services on reputation scores diminished over the past year.  Not surprisingly “Performance” was the highest-weighted factor as consumers continued to worry about the outcomes of the recent recession.

Less noticed was a shift in importance for “Innovation”.  The researchers acknowledged that retail banking product and service offers in market were very much at parity and stated that “the days of being able to differentiate with free checking or a free toaster…that isn’t the path going forward.”

Here’s the best part – the article makes clear that the best way a bank can distinguish itself in the market is “by listening to customers, focusing on their needs and helping them understand how it makes business decisions.” If there was ever a research-driven foundation for further investigation of a relationship approach to bank marketing, this is it.  After a bit of a pause, total relationship banking programs seem to be taking off again. Colloquy reported on two new programs launched recently – one from ANZ Panin Bank in Indonesia and the other by Union First Market Bank in Virginia. The concept has truly gone global as I discovered Touch Points Rewards, a well formed program from Abu Dhabi Commercial Bank (UAE).

If possible, banks have to uncover the means to become more approachable, transparent, and caring if they want to improve their market reputation. The stakes are higher than survey results however, as there is a big opportunity for credit unions, savings and loans, and banks large and small to differentiate in the market through recognition and reward  of customers based on the overall relationship value. With pressure on individual products, debit and credit cards in particular, banks need to recruit the value of customer relationships if they are to mount a value proposition sufficient to change behavior and increase share of wallet with customers.

There’s no “one way” to structure a total relationship banking program, but there is one way that the programs will lead – to profitability.

EMV cards have been in the spotlight this year, with JP Morgan Chase, U.S. Bank, and Wells Fargo making announcements of portfolio migration from magnetic stripe cards to plastic that carries both mag stripe and a “chip”.

Market leading loyalty researchers, Colloquy, featured chip cards in the U.S. in their most recent issue, interviewing Randy Vanderhoof, the long time leader of the Smart Card Alliance, for insight into the wave of change hitting American shores.

Emerging from the smart card discussion, there are two key topics for debate.

1. Over what time period will U.S. migration to EMV take place and at what cost?

2. Will the widespread adoption of EMV cards by U.S. issuers represent a launching pad for loyalty program innovation?

Funny thing how history repeats itself:

• In 1996, Geno Pandolfi, a brilliant creator of payment and loyalty solutions who operated well ahead of his time, developed a smart card interface for his loyalty software, Cobrasys. The solution became part of the many smart card pilots trialed by Visa in Latin America during the late 90’s, and was the operating platform for the Bonus coalition loyalty program in Peru.
• During a 5-6 year stretch between 1998 – 2004, I attended the annual Smart Card Forum which brought together vendors and solutions providers focusing on bringing innovation to the payments business. Randy Vanderhoof was a prominent part of those discussions – most of which were addressing the same questions I have noted above. During those events, I tried on George Jettson-like Java-enabled rings that could be passed before chip enabled readers at POS and bought sodas at the conference events with my smart card loaded with a prepaid purse.
• During my years with Frequency Marketing through 2005, Jim Kuschill, the “godfather” of loyalty processing software technology (in my book at least) invested countless hours to understand what marketers could deliver to consumers in the way of loyalty via Chip that couldn’t be done with a mag stripe. The answer – not much.

Now, it seems, we’ve gone “back to the future” and are opening a similar debate once again. If you’re interested in a “Loyalty Lifehack”, I’ve got one for you:

• EMV cards are being introduced in the U.S. because the case to reduce fraud is so overwhelming that card issuers have no choice
• Trying to create buzz about EMV from a loyalty standpoint is peripheral to the discussion as the real debate is about cardholder protection and payment card utility.

You see, as the U.S. is the last significant nation in the world to adopt the EMV standard, the fraudsters have come to our shores to take advantage of the easiest mark on the globe. Add to that Americans traveling abroad are increasingly targets of fraud as they have only mag stripes cards to use, and the utility issue comes center stage.

Richard Sanders sounded this alarm in 2006 at the last Smart Card Forum which I attended. Richard is a globally recognized payments and loyalty expert, having run the credit card centre of excellence at Visa EU, launching the first “chip and pin” card program in the UK with Abbey (now part of Santander) and now sharing his wisdom with clients of ACI Worldwide, where he serves as a Solution Consultant. ACI recently published a comprehensive loyalty survey based on the retail field which garnered much attention in the press.

During a talk about loyalty and chip cards, Richard told a packed room that “whether they liked it or not” chip cards would come to the U.S. sooner than later. Richard predicted the timing of the introduction would correspond with the migration of other nations to the EMV standard, leaving the U.S. alone as the world’s “fraud magnet”. Some delegates listening scoffed at the idea, responding that our low-cost, always-on communication systems negated any benefits from EMV.

It took a few years for the prediction to come true, but Sir Richard was right. EMV is coming soon, and with the current legislative pressure on swipe fees, we may well see a Chip and PIN model taking hold just as it did in European markets. Whether the eventual form factor is based on contact or contactless acceptance at POS is another subject for debate.

To the question of whether EMV will spell differentiation for loyalty marketers, please don’t bet the farm on it just yet. One reasonably successful example that I have seen is BBVA Bancomer’s migration of its Puntos Bancomer program to Vida Bancomer circa 2006. That program used its new EMV capable cards to carry a purse of loyalty points which could be redeemed with merchants as part of a purchase transaction.

The success of that program was largely made possible through the fact that Bancomer not only was one of the largest issuers in Mexico but also a leading card acquiring organization. With the entire processing, authorization, and settlement lifecycle under its roof, Bancomer was able to recruit merchants to participate, and added some zip to a program originally motivated by the EMV migration.

What’s ahead? Maybe you should have Richard Sanders on speed-dial as he has been living with EMV and Loyalty for the past 10 years.

My guess is this:

For Payments: Count on the mag stripe co-existing with chip for the next 3-5 years and then gradually phasing-out. The speed at which terminal conversation can take place and the determination of “fallback” policies will dictate the horizon.

For Loyalty: Some loyalty programs will use available real-estate on the chip to facilitate instant redemption and other “in the moment” rewards, but look for more powerful innovation through mobile, social, and location enabled paths.

Feeling “chippy” about the subject? It’s a complex subject, so drop a comment and spark the debate!

Loyalty is Social and American Express knows it.

The credit card issuer launched its “Social Currency” campaign back in March and I have to admit that upon first review, I thought it was more show than go. Since that time, the multiple campaigns launched in market with partners including Foursquare, SCVNGR, and Facebook validate their commitment to incorporate digital tools and redefine cardholder perception of card based rewards programs.

The original ads that proclaimed Membership Rewards Points to be a Social Currency inspired my imagination of what they might offer. Would they enable points to be used with a check-in, at point-of-sale to complete a transaction, or to facilitate P2P payments between card-holding friends? The first offers weren’t quite this imaginative, being limited to cardholders being able to shout out their favorite use of points on the company’s Facebook page and offering its version of “deal of the day” with special offers on redemption items.

Nothing wrong with either of these, but I was hoping that the concept of “Social Currency” would evolve and fulfill the idea in earnest, rather than becoming another “Blue Card”, i.e. a smart (chip) card with more sizzle than substance.

My suspicion and skepticism has been gradually swept aside as Amex announced its merchant based test with Foursquare at SXSW and later took the check-in deals nationwide.

More recently, Amex teamed up with SCVNGR and Levi’s to create the first paperless daily deal redemption system. Using Amex’s Smart Offer Engine, the same one used to support the Foursquare promotions, cardholders can sync their SCVNGR LevelUp account with their Amex account and use daily deal coupons in real-time without having to print a coupon. That by itself should drive consumer engagement based on curiosity over an innovative and easy to use rewards delivery system.

To top it off, Amex now lets cardholders cash in their Membership Rewards Points to buy advertising on Facebook. Incorporated as a benefit in its Open Network, real business value is offered to small to medium businesses. Reports disclose that $6,750 equivalent of points buys a $50 Facebook ad, meaning a conversion rate valuing points around 70 basis points. Regardless of how you feel about the exchange rate, the new option allows business people to get something useful for their business for free and differentiates Amex from other card issuers.

Amex used the tagline “We live in a world of possibilities. Isn’t it time we had a social currency to match?” to introduce the concept of Social Currency.  What they unlocked at the same time was the consumer’s imagination as to the many new ways points can be used to gain rewards.

American Express may have also changed the way we look at credit cards. Millions of people desired an iPhone, not to make calls, but for the available apps and the cool things they would do for you.

Today, many people “don’t want another credit card”.  Through the multiple campaigns and partnerships introduced by Amex this spring, consumers they might want an Amex card for the “many cool things” that Membership Rewards will do for them.

The continuing battle over the regulation of interchange has yet to hint at a winner. The battle lines are clearly drawn and each side of the debate between banks and retailers makes a sensible case, until you read the opposing view. For the average consumer, that is exactly the problem.

At first blush, many consumers may soften to the argument made by retailers and others who favor the legislation. The banks are painted as evil, wicked, mean and nasty and their excessive swipe fees are portrayed as a tax that is about as fat as Wall Street bonuses.

Before the retailers are able to firm up a victory, the banks make solid points that retailers in other markets, Australia is the favorite one cited, did not share their savings on interchange by lowering prices. Worse yet, the banks make clear that they will have no choice but to raise fees on all sorts of checking and savings accounts to make up for their diminished margins. Even Russell Simmons has joined in to advocate for the bank position.

Who is speaking is almost as interesting as what is being said. Every public dispute has a spokesperson, and JP Morgan Chase has either volunteered or has been elected by the others. Even though PNC, Regions, and SunTrust have announced attenuated benefits with their debit card rewards programs along with Chase, it seems to be Chase that is leading the campaign to scare the wits out of consumers based on Durbin being implemented as currently proposed.

Follow this timeline with me for a moment

• On January 14, industry news outlet PaymentsSource reported that Jamie Dimon, CEO of JPMorgan Chase, told stock analysts during a quarterly earnings call that up to 5% of banked consumers might be forced out of the system if financial institutions raised fees to make up for the proposed reductions in debit card interchange
• On March 10, industry sources reported that Chase and possibly other big banks were considering a cap on debit card transactions of $50 or $100
• On March 15, Chase announced it was terminating the Chase Ultimate Rewards program due to pending Durbin passage
• On April 15, Chase announced that is was not planning to discontinue Ultimate Rewards in light of the federal government’s decision to delay enactment of interchange fee cap rules

This series of announcements may unfairly paint Chase as a manipulative bad guy in a fight where surely other banks are standing behind the curtain and cheering them on. Regardless of the messenger, the message itself is confusing and a bit frightening for consumers. Is it enough to make them call their Congressman and lobby for the bank’s point of view?

Interestingly, the retail lobby has managed the fight through associations and has kept any one retailer from standing in the spotlight. This tactic might tell you how vulnerable every retailer feels at the moment. The economy continues to recover and none of them wants to be the “voice of the industry” – and subsequently the target of consumer ire.

Watching this battle unfold is like being a bystander at your parent’s divorce. The arguments all too often spill out into public and the selfish interests of each parent seem to overwhelm the welfare of the children. American consumers, those that are following and understand the substance of the debate, are gathering the idea that their interests are secondary in this brawl.

It might be time for the two “parents” to empathize with the damage being inflicted on the “children”. It is possible that regardless who wins this fight, consumers will dig their cynical heels in further, making “loyalty” a very difficult task to achieve.

Navigating the business landscape requires more discernment and wisdom than ever. It seems to be the season of negotiation, and lobbyists from both sides of a case seem willing to take huge gambles for a chance to win big.

When the National Football League’s collective bargaining agreement expired on March 11, the locked-out players responded swiftly, filing an antitrust suit that challenges a wide range of NFL rules as well as the work stoppage. The National Basketball Association is facing a similar standoff and, according to some sources, both sides are willing to risk an incredibly lucrative business for just a wee bit more money (well, maybe a lot more).

Just as difficult as it is to say who’s to blame for the NFL work stoppage, it is difficult to predict where current negotiations around the Durbin Amendment will end. We reported last week that Durbin had registered it first Loyalty program kill. The count was actually “2″ as both Regions Bank and PNC Bank announced changes to their relationship banking programs.

Following the two bank announcements, JPMorgan Chase announced that it is considering capping debit card transaction limits at either $50 or $100. According to my calculations, the average transaction amount of all debit transactions for the top 6 debit issuers (Bank of America, Wells Fargo, JPMorgan Chase, US Bank, PNC Bank, Regions Bank) was about $41 in 2009.

The average transaction amount for signature transactions, those to be impacted most by Durbin, was slightly higher at nearly $43, but in any case, you can quickly understand that placing a $50 cap on debit transactions, the product would lose its utility for most consumers. Placing a cap of any kind, in my opinion, could spell death for Debit, so my initial shock upon reading this news quickly transformed into hope that the JPMorgan Chase announcement might be nothing more a negotiating ploy in the fight to stave off implementation of interchange legislation as currently written.

Debit cards are referred to by some in the payments industry as “deposit access” products. They were created to ease consumer’s access to their own money and as a welcome mat to a stickier relationship. The reduction in processing costs from paper checks was foundational to the business case and was enhanced by the prospect of incremental spend and fee income. Debit card loyalty programs were built with an expectation of incremental spending with the product and, to an extent, by assuming that average ticket size will increase.

I am hopeful that the chain of business logic circulated over the past 10 years won’t be broken in favor of a gamble against interchange legislation. In any event, it seems that the banks are preparing for the worst case to become reality.

Loyalty marketers with a stake in financial services and debit card rewards programs should give this subject serious thought and be prepared to make rapid adjustments in their own market strategies.

Winter Can Be Bleak

Imagine you are playing a video game populated by card based loyalty programs. It wouldn’t be difficult to choose the best weapon from your arsenal to facilitate widespread destruction.

The Credit Card Accountability Responsibility and Disclosure Act of 2009 was signed May 2009 and implemented over 3 phases through August 22, 2010. This would be the first choice to weaken the enemy. Evidence of diluted value propositions, added fees, and cancelled co-brand cards are easy to find across the industry.

To finish your domination of card based rewards programs, simply swap weapons and pile on the damage with the Dodd-Frank Act, specifically the Durbin Amendment, set for implementation in July 2011 pending evaluation of comments received during the recently ended period on Feb. 22, 2011.

Squeezing revenue streams on credit and debit cards have an obvious impact on the bank’s ability to assemble a card rewards program that is attractive to consumers. For example, Durbin will potentially reduce electronic debit transaction (EDT) interchange fees between 25-75%.

Card issuing banks are preparing for the worst-case scenario with swipe fees and interchange being reduced, and Region Bank’s announcement this week that it is suspending enrollments in its Relationship Rewards program was a shocker.

Total Relationship Banking has some challenges to proliferate in the industry, but the continued operation of Citi ThankYou, PNC Points, and the new launch of Regions Relationship Rewards offered hope that financial institutions would change their approach to customer loyalty, transcending cards to reward relationships.

Interesting in all of the current market uncertainty is that merchant lobby groups are pushing for more controls. Merchant lobbys insist that Durbin leaves too much money on the table, and that the ceiling for debit interchange is up to 8 times higher than it should be for signature debit transactions, and 36 times higher for PIN debit transactions.

I have three thoughts that merchant lobbys and over-eager legislators might want to consider before they launch a full-on nuclear attack on the banks:

1. The proposed Durbin Amendment may provide card processing cost reductions to merchants and good sound bites for legislators, but retailers will have to cope with a new reality where they shoulder more responsibility for funding their marketing efforts, losing a strong funding partner in the banks.

2. This new burden comes at a time for retailers when the “Groupon” effect is reaching its apex. Consumers are being conditioned to seek deep discounts while tactics to drive repeat visit, wallet share, and account retention are deferred as a priority. That’s not good for longer term retail profitability.

3. Retailers will have to review their participation in merchant funded rewards programs that continue to be the best model to provide rewards on Debit. How will retailers balance their joy for interchange reduction victory with their desire to drive portfolios of consumers to their brand via use of an affiliated Debit card?

Interchange legislation has a highly checkered history in Australia and the same is proving out in the EU. If all parties involved truly wanted to put the customer first, there would be softer talk on interchange legislation with a longer term view to sustaining profits.