A Quiet Revolution in Debit Cards

Retailer-issued debit cards will allow use at other stores, with some rewards.

ByABC News
March 17, 2011, 2:02 PM

March 26, 2011— -- Tired of stuffing a rewards card and a debit card into your wallet? This summer, you could get a card that does both.

Offered by a tiny Florida company, the new card could wreak havoc with some of America's largest banks. It also could also allow merchants to avoid the issue of interchange fees, a billion-dollar industry and the subject of a huge and expensive debate right now in Congress.

Here's the idea: Starting this summer, a new generation of debit cards will be available directly from retailers. The cards will bear the retailer's logo. When consumers use the card to make purchases with that retailer, they receive points that can be redeemed for future purchases.

There's nothing new about retailer rewards cards. What is new about the forthcoming debit cards is the freedom they allow: They can be used to make purchases at just about any store, not just one retail chain (such a card is called "open loop" in the debit business). Rewards points, however, are limited to the issuing retailer.

Also new: The consumer decides which bank account the card is attached to. Until now, debit cards have been offered only by banks and linked to checking or savings accounts at issuing institutions. In this case, the card exists separately from any dedicated bank account. Consumers choose which checking or savings account should be tied to the card, and they can change accounts at any time.

"It's a loyalty card and a payment card all in one," says Danny Portal, executive vice president of the National Payment Card Association, which is developing this new offering.

Credit.com's Consumer Guide to the Proposed Debit Interchange Rule

Consumers will apply for the card from retailers, which in turn will get them from the association, which is actually a small company in Coconut Creek, Fla. The company will manage the transactions, and act as a go-between with Western National Bank, the cards' issuer.