Citi Offers Air Miles for Some Debit Transactions

Sixteen months after replacing its automated teller machine cards with MasterCard debit cards, Citibank has introduced another debit card program with a new perk: airline miles for purchases.

The Citigroup Inc. unit said last week that it had expanded its 15-year-old partnership with American Airlines to include the new Citibank AAdvantage debit cards, sister products to the successful AAdvantage credit card.

The Citibank frequent-flier debit program is the fifth such program on the market. J.P. Morgan Chase & Co. introduced the first such card program, cobranded with Continental Airlines, in February 1999. In September, Bank of America Corp. introduced three Visa Check cards cobranded with Alaska Airlines, America West, and USAirways.

Citibank’s debit card program differs from the others in one respect, which will no doubt displease merchants: The bank will award miles only for signature-based transactions, not for PIN-based ones, for which merchants are charged lower fees. Morgan Chase and Bank of America award miles for both types of transactions.

“The reason essentially is the cost of the miles,” said Wayne Malone, vice president of distribution management with Citibank’s North American retail banking division. “With a credit card, there are other things besides the interchange fee that generate revenue, but that’s the only thing that generates the revenue for a debit card.”

Randy Petersen, the editor of Inside Flyer magazine and the Web Flyer site, which track frequent-flier programs, said that issuers pay airlines in advance for the miles that cardholders will redeem. He estimated that Citibank paid American around $500 million for miles to be redeemed this year — a relatively high figure that reflects the spending power of the 45 million members of the airline’s AAdvantage program...

Mr. Petersen said that more than half of all frequent-flier miles are earned through purchases other than air travel.

American Banker, 1/29/02