Why retailers use rebate cards instead of checks?

The two last gadgets I bought were from Staples and Radio Shack. Both had mail-in rebates and both came in a form of a Rebate debit card issued by Visa. This is a move from rebate checks that the companies used in the past and I should add a move I don’t like.

In case of a check I would simply deposit it into my account and life goes as normal. In case of a debit card, I can’t just withdraw the funds. According to the instructions I have to use it as a credit card which raises a couple problems. First, I have to keep track of the remaining balance and make sure I don’t overcharge. Second, if I need to charge more than it is left on the card then I have to use partial charge - something online stores don’t do.

The overcharging is a bigger issue that it may seem. No, you don’t get slapped with a fee. Instead the retailer attempts to put a hold on the funds and you can’t use the card until the hold is released (a few days in my case).

So why retailers move to debit cards? Since using cards is not convenient for the customers it has to be done because it is convenient for the retailers. Here are a few things that cards enable retailers to do:

  • They have your money until you use it - the balance on the card is in the retailers’ account until you actually use the card to buy something, and every bit helps the business especially in the kind of economy we are right now
  • They make money off of your purchases - Visa typically charges a fee each time you use the card for a purchase. The company issuing the card may well get some charge backs. Even if they don’t, I am sure Visa will gladly cover the expenses for issuing and mailing out these cards, something retailers have to pay for themselves if they use checks
  • They keep the remainder of the balance - If you discard or lose the card w/o completely using it then the issuer keeps the remainder of the balance. Why would you not use it all? Because of all the difficulties associated with calculating the remaining balance.

All of the above is a speculation based on my experience and common sense, so don’t take things for granted. The explanation however seems very plausible to me and I would really like to find out if I am right, so if you have any insider knowledge on how things work in the marketing department of these companies, please leave a comment.

Photo courtesy of licokao @ Flickr

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12 Responses to “Why retailers use rebate cards instead of checks?”

  1. 1 Jonathan Apr 8th, 2009 at 11:42 am

    I use them to buy gas for the cars. It’s a single transaction that kills the card in one shot.

  2. 2 Don Apr 8th, 2009 at 7:03 pm

    I totally agree with Jonathan. The first time I got a rebate as a debit card I struggled with the best way to use it. What you do is take it to the gas station, you have to go inside, pay at the pump will not accept your rebate card. Tell the clerk what pump number you are at and ask them to credit your pump with some amount that you are sure will fit into your tank. They need to use it as credit card, not as a debit card because sometimes debit cards try to put a $75 hold against the card which will fail if the rebate card is only $15. Done this several times (including about 1 hour ago) and it works flawlessly every time.

  3. 3 Yan Apr 8th, 2009 at 7:50 pm

    I get 5% cash back on gas purchases from my other credit card and so I would rather use my rebate card on something else. Will have to think what that is. So far I am spending it on Starbucks coffee but running the balance is a major hassle

  4. 4 Bob Smith Apr 10th, 2009 at 3:04 pm

    Credit card companies tack on all of these fees below to try to make money off of consumer who owns the card:

    Atm Fee
    ATM Withdrawal fee
    ATM Balance Inquiry fee
    Automated Telephone Inquiry fee
    Customer Service Live Call fee
    Paper Statements per request fee
    Replace Card Fee
    Inactive Account Monthly Maintenance Fee
    Monthly Maintenance Fee
    Direct Deposit Rebate Fee
    International ATM access
    International Currency Fees

    And as you said, retailers typically have pay to use the company card companies services. Usually, its between 3-5%.

    Fees retailers pay include: monthly fees (Gateway Fee, Statement Fee, Monthly Minimum) and transaction fees (address verification fee, retail/transaction fee).

  5. 5 Joy Apr 16th, 2009 at 10:02 pm

    What do I do with the one penny I have left on my Visa rebate card. If I ignore the thing will it just expire or will Visa charge me an account maintenance fee?

  6. 6 Yan Apr 16th, 2009 at 10:50 pm

    I have a different problem. I had a $25 card from Amex and the merchant overcharged it by $1 so now I have -$1 balance. Should I be concerned?

  7. 7 Marty Jun 5th, 2009 at 8:53 pm

    I used the cards to pay my cell phone bill online (which has a minimum payment amount of $1). Originally I would get stuck with small amounts (less then $5), so I was paying the bill(s) in small increments to finish these cards. Now, as soon as I receive them, they are immediately emptied using above method. I end up with positive balances on the phone bill, which is fine. I no longer need to worry about (1) losing the card and (2) not using the entire balance.

  8. 8 TAN Aug 13th, 2009 at 11:08 am

    Is a prepay rebate debit card exactly opened an account under my name? My question is: if it is under my name, when I activate it and use it, that means I open an account and close it. My credit score will be deducted. If I am going to buy a house and apply the mortgage, it will be not good for me.

  9. 9 stev anderson Nov 18th, 2009 at 11:36 pm

    CDN is still providing a retailer rebate card worth $200 …but they will deduct a $3.90 from it!!

    —if you want one , confirm it by call 1-888-8041696

  10. 10 Joey Dec 1st, 2009 at 9:50 am

    I hate these things and I wish they were against the law. I do not want payment in the form of a card.

  11. 11 Paul Palmer Dec 25th, 2010 at 1:24 am

    Rebates were a scam to begin with since they counted on half the people forgetting to apply for them after the purchase. Now they have loaded a card scam on top of the rebate scam since most people will leave an unused remainder and they can apply endless charges.
    Credit institution=crooks
    Those are the controlling equations.

  12. 12 frankie Nov 8th, 2011 at 10:55 pm

    …I absolutely hate this type of rebate! I just found out that my rebate debit card had been charged by someone in another state! I wanted to use it to purchase something online since it is about to expire and I knew I’ve never touched this card. This is robbing!! The whole rebate thing on a debate card has to be stopped. We have to overwhelm the companies with lawsuits if they decided to issue rebate cards instead of checks!

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