Why cashback is a powerful tool to drive customer loyalty

The concept of cashback gained mainstream traction in 1986 when Discover Financial Services, a division of Morgan Stanley, launched a credit card with no annual fees and a cashback bonus on certain purchases. Fast forward to 2021, cashbacks are mostly promoted as a credit card feature where the cardholder earns a percentage of eligible spending. This is then, generally redeemed through a bank deposit, offsetting your credit card balance or a gift card.

However, the introduction of cashback is now seen as a way of supporting local brick and mortar stores and offering consumers some savings on their regular purchases. There has been a growing trend among retailers and consumers, where the former gets increased revenue and the latter some future savings.

According to Statista, the global cashback industry is expected to be worth more than $200bn a year by 2024, with statistics showing that 46 per cent of cashback participants consider it a vital step in their purchase decisions. As per the same research, retailers who have participated in cashback grew their revenue up to two and a half times faster than competitors who do not use them while generating 100-400 per cent higher returns to their shareholders.

Cashback is generally a more powerful tool to drive loyalty and revenues for brick-and-mortar stores and these strategies yield more financial benefits for retailers. Consumers receiving cashback payments are not only more likely to buy again from the same company, but once they do, it is likely that they increase the size of their future purchase.

A customer is likely to visit a business three to six times a month depending on the services offered and a cashback provided. Since, cashback encourages customers to visit a store more frequently to redeem, it over the time converts into regular sales and financial benefits for retailers. This is the reason why retailers are keen on offering higher percentage of cashbacks than discounts.

There is also better customer retention because usually it builds a greater trust among consumers. This encourages the businesses to give higher reward percentages to the users as they are more likely to get a repeat customer.

With more brands competing for customer loyalty, rewards programs also offer an incentive for customers. But customers tend to like real cashbacks more than point rewards systems, where an irrelevant small percentage of the spend is credited to the account and customers are required to make bigger spends overtime to reap actual benefits out of the reward system.

With cashback offers, you don’t need discounts at all. For the customer it’s effectively free money, instead of offering 20 per cent off on your stock, they offer 10 per cent cashback. Hence, people will be more swayed because they are getting something, rather than just parting with a little bit less.

Uday Rathod is the CEO and founder of UAE-based digital payments platform ZNAP