I'll pay by debit: these days, debit cards--not checks--are increasingly driving the relationships between customers and banks. One strategy to encourage debit-card usage is to offer "instant" rewards to encourage targeted customers to utilize their card more often.

• Author: Giltner, Bob
• Position: Fundamentals: Debit Card Management

The checking account has long stood at the center of banks' relationships with their deposit customers. Customers have typically regarded the bank where they had their checking account as "their" bank--the one they considered first when they needed a new financial service or product.

At nearly every bank, a host of business decisions flowed from this situation. Banks built branches where they believed they could attract checking accounts. They marketed checking accounts. They packaged other services with checking accounts. And eventually they gave checking accounts away for free, in the belief that checking customers would bring in other business sooner or later. They always did.

But today, just having the checking account is no longer the indicator of which bank customers consider their primary bank. Free checking, gifts and cash for opening a new checking account have generated a lot of new accounts, but sometimes consumers never fully adopt the new accounts.

Some financial institutions argue that the primary banking relationship for most consumers--and therefore the relationship with the greatest profit potential--is with the bank whose account they actually use most often. In many cases, this means the bank whose debit card they use.

As a result, more and more banks are managing debit card usage as a relationship management tool, rather than passively accepting whatever usage their cards get as an alternative payment device. Recognizing that boosting usage is a strategic imperative for increased deposits, multiple relationships and retention, they're tailoring different offers to different customer groups to encourage either initial usage of a card or increased usage. And they're finding that there can be an immediate income payoff for this type of debit card management.

Two banks, Busey Bank (assets: $4.3 billion), Champaign/Urbana, Ill., and Republic Bank & Trust (assets: $3.1 billion), Louisville, Ky., are examples of how strategic segmentation of debit-card users and "instant" rewards can increase noninterest income.

Busey Bank has implemented a debit management initiative in which results were tracked in detail. According to the bank's figures, customers who swipe a debit card more than 20 times a month generate on average $98.88 in interchange income per year. This compares with $21.16 for customers who swipe up to 20 times a month. These heavy users also account for an average of $203.65 annually in non-sufficient funds fees, compared with $180.29 for the more modest users of the card, $58.59 for nonusers and $42.93 for customers without a card.

There are three elements to the Busey Bank approach.

* The bank makes tailored offers to segments at all levels of debit-card usage. In other words, the bank does not simply offer blanket rewards to the universe of debit-card users...