The History of Cash-back

The concept of ‘Cash back’, a financial incentive or rebate, was born in Reagen America at a time when mass deregulation spread across the many industries. The financial industry in particular was to experience a great change as this era saw a boom in new competitors, resulting in a tidal wave of choice for the American consumers who saw a rise in fervent companies desperate for new custom.

As the many credit card companies battled to deliver the most competitive offers for their customers, the pioneering proposal came from the Discover Credit Card which made an industry shattering offer of 1% cash back of annual purchases. In short this meant that a cardholder who charged $5,000 over a twelve month period could expect to receive a cheque for $50. Although the cash back formula has evolved into a more complex system, the Discover credit card continues to thrive.

Cashback inspiration
The source of inspiration for cash-back schemes could be argued at great length, but some of the more obvious customer-rewarding schemes that still seem to prosper are the competition from airline companies who offer a variety of Airline Mile programs to encourage both loyalty of brand and repeat custom. The Air Miles Travel Promotions Company Ltd was formed in 1986 and was bought at a majority of 51% by British Airways soon after this, and so many credit card companies quickly followed suit and began to offer their own competitive rewards with travel. However, whilst there continues to be a loyal following in repeat customers, gaining new interest in the benefits of Air Miles has proved challenging and in order to reach their potential customer base, credit card companies had to evolve again.

To clarify that customers could reap more rewards, banks soon changed the name of their rewards from credit card miles to credit card points, opening up a variety in incentives to suit a much wider range in customers. This promotional attack seemed to work as customers really began to take notice of these offers. From the 1990’s right through to the twenty-first century, consumers found that the principle players in the credit card market were offering a cocktail of rewards (and still are) on travel, fuel and cash-back rewards. Again, travel rewards hit back by elaborating their offers to include rewards on hotel rooms, fuel and entrance fees for a variety of attractions; a pattern seemed to be emerging and the winners were those consumers prepared to do a bit of research.

In light of the various air-mile and credit card schemes that became available throughout the 1990’s, identifying the shopping patterns of customers quickly became more important as competition increased. It became evident then, that companies soon began to understand the need for broadening and strengthening their customer focus; it is easier, cheaper and more productive to encourage an existing customer to be loyal than it is to entice new shoppers.

As the age of the internet began to grow (but was still a relatively new phenomenon for the ordinary shopper), loyalty reward schemes continued to take shape in the form of the loyalty card, points cards, the rewards card, and club cards. It is estimated that around 85% of UK households today have at least one active loyalty card confirming that the consumer is always ready to be rewarded for their spending and their custom.

Businesses initially capitalised by offering benefits that cost little but appeared unique, but once again, competition from other retailers pushed the boundaries and with the arrival of the internet, came a brand new contender.

Cashback and loyalty
As the internet has become more accessible into households, retailers have really had to step up to the challenge of retaining customer loyalty. Shopping has become much more convenient for consumers, not just in a literal sense with the arrival of home delivery, but with the explosion of a variety of websites that offer prices to rival the industry giants. E-Bay should at least be acknowledged here as being one of the largest sites to challenge prices; as an auction site the customer is able to set their own price, but the sheer scale of this internet phenomenon could certainly be considered as one of the inspirations for the power of internet advertising…and so…the next phase arrived in the form of cash back websites.

According to figures published by the Interactive Media in Retail Group, one in ten retail purchases in the United Kingdom are now made over the internet. The ability to make quick comparisons, cheaper prices and the convenience of not even having to leave your home has lured many consumers away from the high street. New websites are capitalising on this next stage of consumer-evolution by offering a refund of a fraction of the price every time the customer buys through a ‘linked’ retailer.

Cashback websites
Understanding cash back websites requires us to first of all comprehend that when someone clicks a link on the internet that leads them to a new site; it is actually rather easy to track where that click originally came from. The many millions of websites are therefore able to use this to their advantage by uniting with affiliate programs. Essentially, cash back websites usually gain commission by directing customers to associated websites, earning money when the customer spends as a result of that introduction. By offering a percentage of that commission money back to the customer, the cash back site still makes a profit and achieves allegiance from its shoppers.

In a sense, cash back sites are really advertising sites: they list a variety of retailers and when you click through these websites, they are rewarded for ‘introducing’ or ‘providing leads’. But, with cash back sites, some of the revenue earned is rewarded back to you the customer.

It would seem that modern consumerism has finally reached its potential, the ultimate range in choice of retailer with financial rewards to boot. Cash back websites have a range of incentives themselves, from financial bonuses for committing to other potential earnings for introducing family and friends. Finally, it would seem, it is actually possible to be paid for shopping.

Filed under: Cashback Guides