How Banks Can Make Debit a Revenue Driver

While credit cards have long commanded the spotlight (not to mention the bulk of bank loyalty budgets) everyday spending is steadily migrating toward debit. Historically viewed as a basic utility for accessing checking accounts, debit is rapidly becoming consumers’ most frequent financial touchpoint.

Financial institutions have long built their revenue and reward frameworks around credit and lending. However, with more consumers moving to debit, and fintechs actively reinforcing this trend with compelling debit-linked perks, debit’s importance to consumers is becoming hard to ignore.

To capitalize on this shift, banks must rethink debit economics. By leveraging emerging revenue strategies, banks can generate incremental non-interest income and meet customer expectations for value and rewards, without taking on additional credit risk.

The shift to debit: by the numbers

The migration toward debit is driven by a mix of consumer caution and digital innovation, a move highlighted by The Wall Street Journal which reported debit card spending growth outpaced credit card spending growth in 2025. A major driver behind this surge is growing consumer apprehension about debt. According to the Federal Reserve, debit cards accounted for 30% of all monthly payments in 2024, nearly tying with credit cards at 32%. And two out of three consumers now report paying with debit more often than credit.

With credit card balances spiking and record-high interest rates, many consumers are actively moving away from credit. Debit cards offer a built-in financial safeguard, ensuring shoppers only spend what they have. In fact, Clearly Payments reported that 67% of debit users prefer debit specifically because it helps them maintain budget discipline and avoid credit card debt.

Younger demographics feel especially strong about this, with over 60% of Generation Z preferring debit for its control and predictability. In addition, the rise of digital wallets is accelerating debit adoption. As consumers increasingly default to debit for seamless digital payments via their digital wallets, Pulse Networks reports that card-not-present (CNP) transactions grew 7% year-over-year and now account for 47% of total debit spend.

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The monetization gap

While the surge in debit usage presents a massive engagement opportunity, with consumers using their debit cards 30 or more times a month, it does create a funding challenge for banks. Traditional rewards programs have long been subsidized by the high interchange margins from credit cards, which can yield fees of up to 3% per transaction.

But debit interchange economics simply do not support this model. Due to the Durbin Amendment, debit issuers receive a fraction of traditional credit card network interchange fees: typically only between $0.23 to $0.46 per transaction. With these economics, self-funding rich rewards programs on debit cards is an unsustainable value equation for most banks.

Shifting consumer expectations

Consumer expectations have only grown for rewards from debit. Today’s debt-conscious consumers demand personalized benefits and tangible value, expecting their debit cards to offer the same rewards they historically received from credit cards.

On top of consumer expectations for “credit-like” rewards programs, demand is also being fueled by fintechs, neobanks, and payment apps rolling out compelling debit rewards programs. For example, last year Venmo introduced a debit reward program offering up to 15% cashback at select retailers.

The strategic pivot: merchant-funded rewards

To solve the debit rewards funding dilemma, some banks are pivoting to a new model: merchant-funded rewards. This model allows financial institutions to bridge the interchange gap and deliver what customers want regarding debit cashback incentives – without the bank ultimately bearing the funding burden for the rewards.

Instead of the bank subsidizing customer rewards out of its own slim interchange fee margins, it collaborates with retailers. Banks integrate embedded shopping tools, launching programs like Capital One Shopping, Citi Shop (a Wildfire client), or Chase Offers, that present shoppers offers and deals from thousands of merchants.

When a bank customer makes a purchase through these shopping platforms, the merchant pays the bank a commission for the referred sale. This commission performs the double duty of funding the customer’s cashback reward while simultaneously providing a new stream of non-fee-based revenue for the bank.

The financial benefits of the merchant-funded model

Merchant-funded rewards shift loyalty programs from internal cost centers into highly scalable revenue generators.

With merchant-funded rewards, banks unlock several advantages:

• Incremental Non-Interest Income: Banks generate new revenue streams from merchant commissions, without changing fee structures or relying on interchange.
• No Additional Credit Risk: These incentives are tied directly to debit spending, so banks can monetize high-frequency engagement without exposing themselves to credit card default risks.
• Enhanced Customer Loyalty: Shoppers are more likely to maintain their primary checking account where their everyday spending is rewarded, deepening digital wallet usage and future-proofing relationships with Gen Z and Gen Alpha.

A new era for debit

While credit cards will surely remain a cornerstone of consumer finance, they can no longer be the sole vehicle for loyalty and cashback programs. By shifting to merchant-funded debit rewards, banks can provide value to the growing majority of debit-forward consumers while generating sustainable, non-interchange-based revenue.