Surely by now you have heard about cashback on numerous occasions. But do you know exactly what it is? Do not continue with the doubt! Find out below all about cashback.
What does cashback mean?
Cashback essentially means money back. It is a system by which a person who makes a purchase can receive a part of the amount back. How does it work? Many banks and issuers of credit or debit cards return to their users a percentage of the purchases paid with their bank card in certain shops. Some of the best known cashback cards belong to American Express, Chase or other big banks.
But you might wonder how the user receives that money back exactly. Well, there are two possible mechanisms:
This is the most common formula. At the end of the month, the card user receives credit in his account whose amount corresponds to a percentage of the purchases made during the previous period, provided that the conditions of the promotion are met.
In recent years it has also become possible to earn cashback in bitcoin or other cryptocurrencies through the use of cryptocurrency cashback programs such as the BTC cashback rewards from Liquigate. You pick the store you want to shop at from a list of over 1200 options via the app and after you buy something, you get bitcoin back into your account.
In gift vouchers
On other occasions, the financial institution returns the money to users in the form of gift vouchers or gift cards. The most common is that the exchange of these checks is made through new purchases in a certain store, physical or virtual (for example, the famous Amazon gift vouchers).
Normally, card issuers can offer this benefit to their users thanks to strategic agreements that they sign with the vendors themselves. The system is simple: a certain store offers the card issuer a discount, for example, 5%, on all purchases that card users make in the store. In this way, the card issuer will advertise the store and increase its sales. Finally, that 5% discount applied by the store to the financial institution is returned to the user, totally or partially, in the form of cashback.
Sometimes, it is the user himself who chooses, from a list of businesses, the one or those in which he wishes to receive cashback, depending on his preferences. In this way, it is even possible to design tailor-made cashback programs.
What are the benefits of cashback? For the user, the benefit is obvious. Just for using a certain card, among the many on the market, he gets a direct discount on the purchase of certain products or services. If the businesses included in the agreement also coincide with those in which the user makes recurring purchases, the benefit received is even greater.
For the e-commerce or the store included in the list, the cashback becomes a tool for attracting customers and monetization. Thanks to the application of small discounts, this company manages to make itself known among card users and “steal” sales from its main competitors. In short, a marketing campaign that usually comes out cheap.
Finally, the card issuer can achieve, through cashback, a differentiating attribute in a highly competitive market. Likewise, cashback guarantees the transactionality of the cards, which is, after all, the main objective of those who sell them. It also goes without saying that a person who uses a certain card on a recurring basis is more linked to the entity and much more open to acquiring other related products (cross-selling).
We are confident that cashback will make a dent in payment habits in the coming years. It looks very good for all the benefits and advantages mentioned.