Banks ponder future of rewards for debit-card transactions.

• Position: Marketing News

Should debit-card issuers discontinue or scale back their rewards programs? Or, conversely, should they aggressively pursue fee-based debit rewards?

These are the questions that financial services companies are asking themselves in the wake of the settlement earlier this year of the lawsuit filed by retailers such as Wal-Mart against card companies Visa USA and MasterCard International.

The retailers had complained that the card companies had violated federal antitrust law by forcing the stores to accept all types of cards--both credit and debit--or none. Merchants preferred PIN-based debit transactions, since the retailers paid a lower fee for these services.

Under the terms of the settlement, banks will receive lower fees when a customer makes a signature-based debit transaction. Financial institutions now are looking for ways to make up the revenue shortfall. According to media reports, the Bank of America has anticipated a 1 percent loss in projected revenue earnings this year ($60 million in after-tax revenue) as a result of the lower signature-based debit fees.

Some banks already charge a fee ranging from 15 cents to 50 cents per transaction when customers use their personal identification number (PIN) for a debit transaction. Other banks are now considering adding a PIN fee.

Previously, some banks had built rewards programs...