Cashback reward program
A Cashback reward program is an incentive program operated by credit card companies where a percentage of the amount spent is paid back to the card holder. Many credit card issuers, particularly those in the United Kingdom and United States, run programs to encourage use of the card where the card holder is giving points, air miles or a monetary amount. This last benefit, a monetary amount, is usually known as cashback or cash back reward.
Where a card issuer operates such a scheme, card holders typically receive between 0.5% and 2% of their net expenditure (purchases minus refunds) as an annual rebate, which is either credited to the credit card account or paid to the card holder separately.[1]
When accepting payment by credit card, merchants typically pay a percentage of the transaction amount in commission to their bank or merchant services provider. Merchants are not allowed to charge a higher price when a credit card is used as opposed to other methods of payment, so there is no penalty for a card holder to use their credit card. The credit card issuer is sharing some of this commission with the card holder to incentivise them to use the credit card when making a payment.
Rewards based credit card products like cash back are more beneficial to consumers who pay their credit card statement off every month. Rewards based products generally have higher APR. If the balance were not paid in full every month the extra interest would eclipse any rewards earned.[2]
History
In the 2000s, major card issuers in the US raised the cash-back percentage up to 5%. The 5% cash back rate usually applies only to purchases made at grocery stores, pharmacies, and gas stations for 6 months.[citation needed] This high rate of cash back was set to grab the attention of potential applicants for them to consider applying for the card. Typically the cash back rate for all other purchases is around 1%.
In 2012 in the United States, due to increased gasoline (gas) prices, gas cash back cards or gas rebate credit cards became very popular among the consumers. Companies provide an average of 3% APR on new gas credit cards. The main idea behind gasoline discount cards is that cardholders obtain a sure percent of the sum they consume on gasoline each month in the form of a rebate check at the end of the year. It works similarly to a cashback discount recognition card with one noteworthy exception: the gasoline discount is frequently applied each month, whereas most cashback cards ship away discount checks formerly a year.[citation needed] This makes the savings easier to view for most consumers.
See also
References
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