X Launching a Debit Card That Combines Rewards and Savings Features

The Elon Musk-led social media giant X, formerly known as Twitter, will reportedly conduct testing with a debit card for its new X Money platform combining both payment capabilities, along with saving components and rewards all in one card.

The Visa card is expected to include a higher-yield savings feature than typical debit products; it may also offer up to approximately 3% cash back, according to reports.

Reward based debit cards are making a comeback after they had been thought to have died. With debit cards potentially able to match credit cards on rewards, this would result in less market share of everyday use for credit cards, which account for large volumes of consistently transacted funds.

As such, the competition for transaction dollars and, the underlying transactional data has now evolved beyond just the institutions that traditionally issued these types of cards.

In 2010, Congress passed the Durbin Amendment which established a cap of around 21 cents (plus 0.05% of the transaction) for debit interchange fees charged by large banks. The decline in revenue resulted in almost all reward programs being discontinued. But the industry was able to adapt.

Many smaller banks and fintech companies today partner together and operate outside the limits imposed by Durbin. New interchange models are emerging with merchant-funded offers and other bundled benefits that go beyond pure interchange.

Many of these new models use partnerships with smaller banks that fall under the Durbin caps. In that way, these smaller banks have access to much larger interchange rates that allow them to generate the funds required to provide rewards.

Many smaller banks and fintech companies operate outside the limits imposed by the Durbin Amendment.

There is a reason why this return is occurring. Now consumers are looking toward using their money based on their income and expenses; platforms are moving their focus from transaction margin to user engagement and data. One recent analysis from EngageFi stated that “debit rewards did not die — big bank debit rewards died.”

This translates into debit rewards that have transitioned away from large banks and are now finding their way back to consumers via new partners. That’s how debit rewards are viable once again.

Airlines, fintech companies, and other smaller financial institutions are now developing and launching debit linked rewards — an indication that there will be more opportunities opening up within the debit rewards category.

Recent airline launches (Southwest & United), illustrate the trend, as each program has been developed with the assistance of a partnership with a smaller bank.

Because X does not rely solely on interchange, it is able to monetize user engagement and transactional data throughout its entire ecosystem. As such, X has greater freedom to provide users with rewards and/or other yield enhancing features that would be difficult for banks to replicate.

As mentioned above, X’s model illustrates how the current debit rewards model functions. Rather than using traditional debit economics, X’s model brings together the concepts of spending, savings, and engagement into a single platform. On this platform, rewards are merely one aspect.

Fintech companies are creating closed-loop systems through their mobile apps, which enable users to earn money, save money, and even pay bills all from within the app.

A debit card is an easy fit for this model of technology because it enables the user to capture their daily spending habits. Additionally, it allows the user to stay in the system (app) longer. Finally, with a debit card, there is no credit risk involved.

For tech and fintech companies, rewards are not just funded by interchange. They also provide a means for increasing usage, reducing churn rates, and driving cross-sell opportunities, among other benefits. This is a very important distinction.

Interchange fees and interest payments comprise most of the revenue in traditional banking models. On the other hand, tech and fintech companies can fund rewards as customer acquisition costs and gain access to additional revenue streams, including subscriptions, advertising, and premium service offerings.