What Does Cash Back Mean?
Cash back is an incentive/reward program that helps customers get back a percentage of the money spent during shopping. Cash back offers come with the credit cards and debit cards. Some websites also offer cash back during online shopping. These are known as cash back websites. A cash back website pays a customer back a percentage of money spent when he/she shops through an affiliate link. Banks and credit card companies target a complete different segment of customers through this offer. Customers who prefer using cards and love to get cash back over any other incentives are the frequent users of this type of incentive program.
How Does the Cash Back Concept Work?
Most customers are familiar with sales, discount or a coupon method which reduces the cost of a product or service upfront. These methods help customers pay less for the product they want to buy. But the cash back method works a little differently. However, it’s important to remember that it also helps to save money.
A customer availing a cash back program will have to pay the total cost of a product initially. However, he/she will get back a particular percentage of the total price paid after a specific period of time. Gradually, the money that customers get back through these cash back offers adds up and increases savings. Customers who buy through cash back offers have a peace of mind knowing that he/she is paying less for the product. If you buy a diamond ring worth $10k with 15 percent cash back, you save $1500 as you get the money back at a particular point of time. You can then put the money in your bank or can invest in some other products.
Why Companies Offer Cash Back On Cards?
Customers choose products from a wide range of options today. They won’t bother paying through a card if it doesn’t offer them any unique privilege. Banks and other credit card companies come up with lucrative cash back schemes to influence consumer’s buying decisions. It’s part of their promotional program.
Cash Back Helps Companies Acquire New Customers
The offers are marketing tools that help credit card companies survive competition. Different card companies offer different types of cash backs to attract new customers.
Cash Back Encourages Use of Cards and Frequent Spending
The ultimate aim is to encourage customers spend more. The possibility of saving money on the actual product price tempts customers to spend at present. They even don’t need to bother taking hassles like storing or arranging discount coupons.
Risks Involved When Using Cash Back Cards
Cash back offers are designed to influence the human psychology. As discussed earlier, the basic purpose of introducing a cash back card is to encourage customers to spend more. Although the offers look attractive for a moment, the increased spending habit can increase the overall credit burden of the customers if he/she doesn’t pay the card balance on time.
So it depends on the customers how they avail the money saving offer without putting themselves into an irreversible financial risk. Also, the cash back offers are most usable when you clear all card dues at the month end.