Cashback reward program: what is it and how does it work?

Cashback reward program

Cashback is a technique that allows consumers to earn money when shopping online. 

Depending on the programme and the merchant behind the cashback, consumers can get between 1 and 15% of their spending back. This technique has become increasingly popular in recent years, with e-commerce sites offering their own cashback programmes to their customers. Very common in English-speaking countries, cashback programmes are becoming more and more popular throughout the world.  

According to Statista, the global cashback industry is expected to be worth more than $200 billion a year by 2024. Cashback is therefore a promising market for consumers who can improve their purchasing power and earn money, but also for e-tailers who see it as a good marketing technique to attract internet users.

In this article we will explain what cashback is, how it works, its advantages and disadvantages and finally the different sites that exist.

What is cashback?

Cashback is the process of getting back some of the money you have spent on the internet. In other words, it is a technique that allows an online shopper to be reimbursed for part of the money spent on an online purchase. And today, some cashback programs even reimburse a part of the expenses made in physical stores, or at merchants partners of some banks for example.

What is the difference with promotions?

When buying on a merchant site, the consumer will not get a discount when buying but will receive a refund after ordering.

To better understand the principle, let’s take a closer look at how it works.

How does cashback work?

In order for it to work, cashback sites must first of all have a partnership with e-commerce sites. Today, the cashback players are in partnership with a multitude of merchant sites in different sectors such as ready-to-wear, beauty, travel and IT. To make sure that an e-commerce site offers cashback, simply go to the website of a cashback player and search for the e-commerce site in question.

Secondly, the consumer must be a member of a cashback provider in order to take advantage of the cashback benefits. Thus, when the consumer wants to buy from an online shop in partnership with the provider of which he is a member, he will have to activate the service via a website, an application or an extension.

When the purchase is made, the consumer will receive a commission based on the percentage of the total amount spent, which will then be added to their kitty on the cashback site. When the member has reached a certain accumulated amount (different according to the sites), he will have the possibility to receive his cashback in different ways: 

  • Cheque, 
  • Bank transfer, 
  • Credit card, 
  • Paypal, 
  • ….

Note that this commission is sent by the advertiser (e-commerce site) when certain amounts have been spent.

How is cashback calculated?

The calculation is simple. If, for example, you buy a perfume for a total of £100 and your specialist site offers 10% cashback, you will be refunded £10 into your kitty. So the larger the purchase, the higher the commission you will get back.

Please note: The percentage of commission depends on the cashback site.

Advantages and disadvantages

As you will have understood, consumers who often buy online can benefit from advantageous discounts, but what are the advantages and disadvantages for an e-tailer?

Advantages for an e-merchant:

  • Reach a wider target and get new customers.
  • Increase its visibility and notoriety.
  • Better understand the buying habits and enrich the personal data of its customers.
  • Increase sales and traffic on your e-commerce site.
  • Increase the average basket of its customers. According to an Xerfi study, for 40% of e-retailers surveyed, the average basket of cashback customers is 10% to 20% higher than that of other customers.
  • Increase the frequency of purchases by customers. According to the same study, for 39% of respondents, the frequency of purchase is twice as high.
  • Build customer loyalty: for 71% of e-tailers, cashback is an effective tool for building loyalty.
  • Strengthen consumer confidence. It is a sign of confidence for 76% of the consumers questioned.

Disadvantages for an e-merchant:

  • Technique not yet fully integrated into the purchasing habits of Internet users.
  • Lack of personalisation of the cashback offer.
  • The RGPD is becoming more and more demanding. 

Which cashback sites exist?

There are many cashback sites, here are the biggest players in the market:

  • Capital One Shopping
Capital One

Capital One Shopping is a free browser extension with the aim to help you save money shopping online.  It’s a price comparison tool and also a cashback app. This application is usable online and in-store, it allows you to shop and earn money, both online and in physical shops.

  • Rakuten

Rakuten is one of the most popular cashback sites, which permits you to receive cashback by Paypal or by check. With Rakuten, you can get a high cashback percentage. The site has one of the biggest lists of retailers participating in their cashback reward program. 

  • Honey

Honey is a free mobile app and browser extension that allows you to save money on your online purchases. This app is partnering with over 30,000 retailers and redeems cashback via gift cards or cash out with PayPal.

Cash back reward program as a fidelity loyalty program ? 

Cashback used to be known only for its ‘reward’ functionality, but we now see it as a valuable customer loyalty program in itself. Cashback as a customer loyalty programme is used to encourage loyal customers to spend while giving them back a percentage of the money they spend, and saving them money on future purchases. With this type of programme, you can build customer loyalty and enhance your customers’ experience

The 3 benefits of cashback programs when it comes to loyalty are :

  • Customers will want to spend more money, to gain more
  • Your products will have a better visibility thanks to the rewarding service
  • Your customers will be more likely to join your loyalty programme 

Cashback is a type of loyalty programme that is becoming increasingly popular with consumers, particularly in the Asia Pacific region. There are other loyalty programmes such as: Point program, cashback program, referral program, paid program or gift-card program.

In short

In our opinion, cashback is a very interesting technique for e-commerce sites, as it is a “win-win” for consumers and e-retailers. Consumers can save money on their online purchases and e-retailers can reach new customers, all the while increasing sales and building loyalty.

According to Statista, the global loyalty management market size was US$4.54 billion in 2021. Market assessments predict that the size of the loyalty management ecosystem will exceed US$24 billion by the end of 2029. 

Many consumers have changed their shopping habits since the health crisis and have turned to retailers that are competitors of those they previously shopped at. Indeed, according to the Global Loyalty and Rewards Market Survey, almost 95% of consumers have started to explore different brands and shops, even for their usual day-to-day shopping.

Many brands have consequently rethought their customer loyalty techniques and programs. The cashback reward program is a good opportunity for e-tailers to get ahead of their competitors by integrating this feature into their marketing techniques.

Photo credit: Gabriela Biscáro