What is Cashback?

Business model

Cashback sites and platforms earn revenue through affiliate marketing. Basically, they are paid for driving quality traffic to partner sites. For example, when a customer clicks on Amazon (E-commerce site) through Shopback (cashback platform) and purchases an item, Amazon pays Shopback a percentage of the revenue. To Amazon, this is just another channel for marketing, similar to using social media or Google ads.

Cashback can be applied to both online and offline businesses

Types of cashback

There are two main forms of cashback – platform cashback and merchant. cashback.

Platform cashback is cashback that can be redeemed throughout the platform or can be cashed out to your bank account. This means that cashback earned from one restaurant can be used to offset your bill in another.

An example is Fave. When a customer makes a payment at a cafe via the Fave platform, she will earn a certain amount of platform cashback. At her next purchase at a restaurant, she can use this platform cashback to offset her bill.

The second type of cashback is merchant cashback. This means that cashback earned at the offline outlet or shopping site can only be used to offset future purchases on the same site.

What’s in it for merchants?

There are 2 main objectives that cashback is able to achieve – acquisition and retention.

Cashback rewards is an incentive to drive new customers to the store. For example, if the demographics of users of a cashback platform matches that of the store, the store may want to leverage on the pull of the cashback platform to attract new customers to their store.

Next, cashback rewards, in particular merchant cashback, is able to attract customers back to the store to make another purchase in order to utilize their earned cashback.

Drawbacks of cashback platforms

It is difficult to track whether the traffic is driven by the cashback platform or because of customers returning to the cashback platform for purchases.

In the latter, there is no benefit to the shopping site or offline store as customers will be purchasing from them anyway.

Despite this, companies will still continue to invest in affiliate marketing as it has a far superior return on investment compared to other marketing channels.