For a growing number of banks, their debit cards provided to customers may become the new credit card, as far as generating revenue, as regulations will cap what a bank can make on credit cards soon, forcing banks to look elsewhere for revenue.

For the first time this year debit card expenditures outpaced credit card expenditures, making them a prime target for banks looking for more ways to add fee-based revenue to their bottom lines.

For next year, consumers are projected to an even higher total of about $1.64 trillion using their debit cards, close to 66 percent more than in 2006, says data compiled by The Nilson Report.

This practice should continue to grow for some time, as consumers have resisted taking on more debt via credit cards or other means, and so will continue on in that vein for a long time, as fears continue to resonate within from the economic crisis which isn’t going away any time soon.

Consequently, debit card use will continue to grow as long as those concerns and fears of holding too much debt reside in the psyche of consumers.

With that in mind, the safest and most predictable source of income for banks is something that is fee-based in the current environment, as they can’t count on mortgages generating much income at this time, as they haven’t even unwound their positions in the bad mortgages yet. Some banks have been successfully using the investment units to generate strong income over the last year or so, but that is far from predictable in the short term, and can’t be relied on either in these uncertain times.

This is the reason ways to tap into fees to generate revenue is so attractive at this time, and will continue to be. Growing fee-based revenue isn’t without its challenges though, as that’s coming under fire as well in the debit business, which is largely paid for at this time by the merchants where debit cards are used at.

For example, businesses allowing debit cards to be used will pay from about 1 percent to 3 percent of every transaction, which is similar to the cost of the use of a credit card as the means of payment.

Now during the recession, retailers and other small businesses have been lobbying to have those fees capped by Congress, which some members are taking under consideration. If that were to happen, it would cut back on one of the few fee-based revenue streams the banks could count on as a growth mechanism.

How this relates to debit card loyalty programs is if they catch on even more with the public, that would of course generate significant income from fees for the banks.

what I don’t see at this time is why that would bother big or small business, as it wouldn’t change anything in how they operate now, and it would help them over the short and long term as to generating more revenue as well.

I think their fears are if it’s too successful, the banks will incrementally increase the fee rates to them, raising costs.

This is usually passed on to consumers in how products or services are priced, so in that sense it shouldn’t be that big of a deal. The concern would be if businesses could no longer raise their prices in unison with the costs of allowing debit cards to be used, and then the costs would have to be born by the businesses themselves, which would then significantly cut into profits.

Depending on the loyalty program and what it does and who offers it, they are either free, or users can be charged a fee for the privilege of using it by the banks. So on all sides they’re generating revenue, but it remains to be seen in that type of fee-based atmosphere consumers would embrace these loyalty programs, and whether small business would cooperate if they raise fees on them.