Rewarding customers with airline miles and gift certificates has long been the domain of credit card companies. But now banks are using similar incentives to encourage customers to use their debit cards.

Waterbury-based Webster Bank started offering debit rewards, through the Visa Extras program, about a year ago.

“[We did it] to help with competition [of credit cards],” said John Weeks of Webster. “It was a necessity of the marketplace.”

Other big banks that have branches in the area, from Maine-based TD Banknorth to Bank of America, also have been adding incentives to their debit cards.

“My guess is the bigger guys will do that first,” said Lindsey Pinkham, senior vice president and secretary of the Connecticut Bankers Association. “I think it’s a great idea. From a marketing point of view, it’s almost a must if your competitors do it.”

There are many payment choices for customers on the market, and credit card companies have carved out a successful niche by offering incentives from free long-distance phone calls to airline miles. But now the Visa Extras program – and a similar one offered by MasterCard – gives those incentives to debit card users. Studies have shown that consumers do not see much difference between using debit and credit cards, so banks hope the points offered will convince consumers to shop with debit rather than credit. Customers have gotten used to wanting “something for nothing,” Weeks said, and debit card incentives give them that.

With Webster’s program, customers earn a point for each dollar spent. But points can only be earned when the card is used online or at a store through a signature-based transaction. Any transaction where a customer enters his or her personal identification number does not count. Merchants pay more in interchange fees for signature transactions, a fact that makes it possible for the vendor and the bank to pay out rewards. But because Visa does not make as much in interchange fees as it does with credit card payments, it takes more points to get rewards. For example, according to the Visa Extras Web site, 2,000 points will earn a $5 gift certificate to Olive Garden or Red Lobster.

Some banks hope that will change. TD Banknorth has given Visa Extras points to business customers who use debit cards for about a year, but recently held the soft launch of its consumer rewards program, according to Susan Coward, the bank’s senior vice president of electronic banking.

“I think the biggest thing is getting the organization to understand that people want instantaneous rewards,” she said.

Coward said Visa Extras and other programs should tailor some rewards to customers who may take longer to accumulate points, as many customers do not use their debit cards for everything. She added that she believes Visa eventually will change its points system as a result.

‘Feather in the Cap’

Meanwhile, Webster is encouraging customers in the program to use their debit cards for recurring monthly payments, like utilities and other bills. If those bills are paid online, they almost always qualify for rewards, so it is an easy way for debit card users to rack up points, Weeks said.

Webster first launched the program in January of this year.

“We’ve done very well with it,” Weeks said.

The bank has almost 20,000 customers enrolled, well ahead of initial forecasts that said 10,000 to 11,000 people would enroll. Customers have given a lot of feedback, Weeks said, and despite the fact that they are spending less on a per-ticket basis than they would with a credit card, they are using their debit cards more than they use credit cards.

“From $1.50 at Starbucks to a $500 television, they’re using their cards for everything,” Weeks said.

Despite the potential for confusion about which transactions earn points, Visa did a good job of explaining the process, Weeks said. The company instructs debit card users to hand their cards to cashiers and ask to sign for their purchase.

Webster gives customers monthly paper and online statements that break down the points and purchases to make it easier to customers to understand.

“It’s just been great,” Weeks said.

The program helps the bank earn more income from debit purchases, but is also an important program to offer customers.

“It’s a great tool for our customers to get what they deserve,” he said. “This was just kind of another feather in the cap for us.”

The bank has been promoting the program with statement inserts and fliers, and eventually hopes to make it come automatically with any debit card.

TD Banknorth began a slow rollout of its debit card rewards program for business customers last year. Business customers have responded positively to the rewards program.

“From Visa’s perspective, we’re doing better than the national average,” Coward said.

A recent research study found that consumers are likely to respond well to debit card reward programs eventually. Synergistics Research Corp., a provider of marketing research for the financial services industry in Georgia, conducted the survey “Marketing Debit Cards: The New Reality” in May and June, polling 1,000 consumers 18 and older.

Overall, slightly more than one-fourth of respondents said they had some type of enhancement with their debit cards. The survey asked which rewards, rebates or discounts would cause consumers to use their cards more. Nearly 40 percent identified discounts on gasoline as an incentive that would work well. More than one-third cited a cash rebate based on their purchases. Coupons or rewards points for discounts on merchandise or services, combined points with a credit card and contributions to an investment or education account were all concepts endorsed by more than one-quarter of those surveyed.

One-quarter of respondents also reported discounts or incentives on other banking services, free travel accident insurance, contributions to charities and airline frequent-flier points would provide incentive for them to use their debit card more often. One-fifth cited a catalog of gifts to be redeemed by points and free long-distance phone minutes would increase their debit card use. Overall, about half of all debit card users say they would use their cards more in response to receiving rewards.

“In comparison to credit cards, debit card reward activity is relatively low,” said Bill McCracken, chief executive officer of Synergistics. “However, significant numbers of users would increase their debit card activity in response to rewards, and providers should certainly, at a minimum, incorporate some type of basic reward program into their debit card programs. Practical or everyday rewards such as gasoline discounts or cash rebates are most popular.”

Currently, TD Banknorth offers rewards that range from Starbucks or Blockbuster Video gift cards to vacation trips.

“It runs the full gamut,” said Coward.

Because the program is relatively new, Coward said it will take the bank some time to realize how debit card rewards are different from credit card rewards. For instance, most debit card purchases are smaller than credit card purchases. Therefore, it can take longer for consumers to accumulate enough points for a reward. TD Banknorth plans to push customers toward bill pay. Coward said if consumers pay their mortgage this way each month, the reward points will be more substantial and add up faster. She added that the chances of a large purchase, like $2,000, being put on a debit card is less likely.

“Credit [card purchases] still tend to be that much higher,” said Coward.

Meanwhile, Charlotte, N.C.-based Bank of America is offering another type of reward program with its debit cards. The bank’s “Keep the Change” initiative allows customers to save money. The amount of every purchase a consumer makes with a debit card is automatically rounded up to the nearest whole dollar and transferred from the customer’s checking account into his savings account at the end of the day. For instance, when purchasing a coffee with a debit card, 15 cents would be transferred if the cost of the coffee was $1.85. The bank will also match 100 percent of the “Keep the Change” transfers for the first three months. After that, the bank will contribute 5 percent a year. The maximum match is $250 annually.

Bank of America also offers debit cards that provide airline miles for specific airlines: Alaska Airlines, US Airways and America West.

The Bank of America GM Visa Check Card is another way the bank is offering card perks to consumers. When that debit card is used for signature-based purchases, consumers get 2 percent in earnings that can be applied toward the purchase or lease of a new GM car, truck or sports utility vehicle.

Weeks said he does not believe that rewards programs will draw too many people to a new bank. He instead sees people choosing banks for more traditional reasons: a family history with a particular bank, convenient locations and/or good customer service.