Who Killed the ARCO Debit Card Program? (The Sequel) - NerdWallet
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Who Killed the ARCO Debit Card Program? (The Sequel)

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Update: Both the MasterCard and Discover Arco debit card programs have now ended. Read on for why we think it happened, and what you can do now that you’re back to paying the 45-cent debit surcharge at Arco gas stations. 

Arco killed its MasterCard gas debit card program a while back, in December 2010. Current cardholders were given Discover debit cards, while the MC ones were discontinued. Now, effective July 21st, the Arco Discover debit cards will find themselves six feet under. Cardholders recently received a letter saying that the program would be discontinued, and after the 21st, cardholders wouldn’t be able to make transactions or purchases. We think we have a suspect.

The victim: The Arco debit cards (both iterations) were actually nothing special to begin with. Cardholders got 0.25% rewards when they shopped everywhere except gas stations (Arco and AMPM purchases were also excluded from rewards), and could avoid the 45-cent debit surcharge when paying for Arco gas. Now, to be fair, Arco’s gas is pretty darn cheap, and saving the hassle of carrying around $80 in cash is no small thing. But compared to gas debit and cards, the savings just didn’t hold up. Among the higher-performing debit cards is PerkStreet Financial‘s rewards debit card, which 1%+ back on non-PIN purchases.

And even the debit cards pale in comparison to the gas credit cards available. These specifically privilege gas spending, and the rewards you earn more than make up for going to a slightly higher-priced gas station than Arco.You’re probably best off combining cheap gas with gas rewards – check out our discount gas finder tool for an all-inclusive look at gas prices in your area.

  • The American Express Blue Cash Preferred, which gives 3% back on gas (plus 6% on groceries, 3% on department stores and 1% everywhere else).
  • The Costco American Express, which gives 3% back on gas, even at Costco (most other gas cards don’t give bonuses at the warehouse), plus 2% on travel and dining out and 1% elsewhere. Gas rewards are capped at $3k in purchases per year, ~63 gallons a month.

The suspect: Having been tried for the death of Chase’s debit rewards program, the Durbin Amendment takes the stand again. This time, there’s a twist: decoupled debit cards. These new(ish) financial products let someone (let’s say Discover) act as an intermediary between the customer and the customer’s bank. Let’s say you have a checking account at Bank of America, and you really like the service but don’t get rewards. Discover can give you a debit card that links up to your BofA account, but is processed on Discover’s network. Discover pockets the interchange fee and uses some of that revenue to give you rewards. They can also form partnerships with retailers (let’s say Arco) to offer discounts and get more people to use the cards.

This was a great arrangement for you, Arco and Discover (BofA loses out: they don’t get that interchange revenue) as long as Discover makes enough in interchange fees that it can pay you and Arco and still have some left over. When the average interchange fee was 44 cents, the decoupled debit system made sense. In fact, after a few sputtering starts, the product seemed to finally be moving forward.

Then the Durbin Amendment rolled around. This bill required the Federal Reserve to set a cap interchange fees effective on July 21st – which, wouldn’t you know it, is the day that the Arco debit card will be discontinued. The Fed’s final ruling, announced just last month:

  • Capped debit card swipe fees at 21 cents + 0.05% of the transaction, plus 1 cent if the bank follows certain security procedures (the average swipe fee will now be 24 cents, ~55% of the current amount)
  • Exempted small institutions with less than $10 billion in assets from the cap
  • Made a special provision for decoupled debit cards (like the Arco card): even if they’re issued by a small institution that would be exempt, decoupled debit would always be subject to the cap.

These new provisions will go into effect on October 1st, 2011, not on July 21st as initially planned. Apparently, Arco didn’t get the memo. Still, if you’re mourning the loss of the Arco debit card, dry your tears. We did a few comparisons, and given the choice between a gas station that gives a cash discount (like Arco), versus going to a normal, slightly pricier gas station and getting credit card rewards, you’re often better off with the latter. You can use our gas price tool to find the best combinations of credit cards and gas stations in your area to get the best rewards possible.

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