Loyalty Register glossary
Cashback program
A program that returns a percentage of what a member spends as money or credit, instead of points.
A cashback program returns a percentage of what a member spends as money or credit, instead of points. The reward can be paid into a bank account, applied as a statement credit, or held as a balance for future purchases. Cashback is common with payment cards, shopping portals and some retailers.
Updated · By Loyalty Register Editorial TeamRelated terms
How does a cashback program work?
The program sets a rate, such as a percentage on all purchases or a higher rate in chosen categories, plus any caps, exclusions and payout rules. Cashback builds up as purchases are made and is paid out on a schedule or once the balance reaches a minimum. Because the value is shown in money, members can see exactly what they get.
How does it compare with a points program?
Cashback is simpler and more transparent: no conversion rate, no catalog, no award availability. That makes it easy to understand, and also easy for competitors to match. Points programs can offer rewards with higher perceived value, tiers and experiences, and give the program more control over the cost of rewards, but they are harder to explain. Some programs combine the two by using a points currency with a simple, published cash value.
What should members be told?
The headline rate and everything that changes it: caps, excluded categories, minimum payouts, how long before cash becomes available, and what happens to unpaid cashback if the account closes. In a hypothetical program offering 5% cashback capped at $10 a month, a member who spends $300 a month earns $10, an effective rate of 3.3%. Members compare cashback programs closely, so terms that reduce the real rate are quickly noticed.
What does it cost the business?
Cashback works much like a price discount, so its cost is direct and easy to see. Cashback that has been earned but not paid out is a liability, like unredeemed points, but with less breakage, because members value cash and claim it. A cashback program builds little emotional connection on its own, so programs often add other benefits, such as member pricing or early access, to give members reasons to stay beyond the rate.