Understanding Cashback
Cashback the name itself suggests that cash is paid back. It means a loyalty benefit paid by the card issuer to the cardholder. This reward is paid according to a percentage where a certain amount of money is paid for spending a certain percentage of money. Higher the spending, higher the earning.
For instance you are paying AED 5000 for the vendor and the card issuer offers supposed 2% cashback so here your cashback will be AED5000*2%, so you will be earning AED 100 as cash back on your card. Some card issuers provide instant cashback and some provide during the month end.
There are different ways in which you can receive cashbacks such as through digital wallets, mobile apps, credit cards, utility bills, purchases on shopping and much more.
Advantages of Cashback
- Simple and easy- When you spend you will get cash back it is simple.There is a percentage decided by the service provider and when you spend on any item you will get cashback.
- Quick benefit- Cashback is credited instantly within minutes. Some card providers or apps provide cashback within a few days.
- Flexibility– There is a lot of flexibility when it comes to usage of cashback.
- Reduced Risk- There is less risk for expiry of cashback. Cashback can be redeemed at any point of time. There is no time limit.
- Transparent- You will know what you will earn. Cashback percentage is fixed and it is transparent.
Disadvantages of Cashback
- Low cashback- Cashback is very low generally it is only 1% to 2%.
- Limited benefits- Cashback amounts are very limited there are a limits set on the cashback provided to the users
- Few perks- There are very less perks provided by the partner brands
Understanding Reward Points
Here are some insights on points-based loyalty systems and their benefits. This type of system credits customers with points for every transaction or purchase they make. These accumulated points can then be redeemed for various rewards, such as vouchers, gifts, discounts, flight miles/exclusive offers.
The core idea is simple: the more a customer spends, the more points they earn, thereby encouraging repeat business and increased engagement. This system not only rewards loyal customers but also provides a strong incentive for them to continue choosing our products or services.
The example of spending AED 2,000 would typically earn 200 points. If you accumulate 2,000 points, these could then be redeemed for an item or service valued at AED 200. The exact redemption value is determined by the specific program’s policies.
It’s clear that these loyalty programs are a significant driver of customer engagement and retention, appearing commonly in sectors like telecom, supermarkets, banking and travel apps.
A prime example of successful point systems can be seen in the airline industry, with programs such as Etihad Guest and Emirates Skywards. These programs allow customers to accumulate points or miles that can then be redeemed for valuable rewards like flights or cabin upgrades.
Beyond just redemption, these programs often incorporate tiered membership levels, offer bonus points for specific activities, and leverage extensive partner networks to enhance the value proposition for their members. The sophistication and widespread adoption of these models suggest their considerable impact on consumer behavior and brand loyalty.
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Advantages of Reward Points
- High Rewards- There are high rewards associated with rewards points which can go up to 2x to 10x rewards points.
- Great Deals- There are great deals offered through rewards points from travel to dining and much more
- Promotional benefits- Promotional benefits during festivals, holidays and other events are provided to the card holders
- E-commerce benefits- You can redeem points while booking hotels, travel tickets, retail stores and others
Disadvantages of Reward points
- Difficult system- The reward points are difficult to understand sometimes the users will not know how to redeem the points
- Expiry- Reward points have a short time duration and they expire after a certain period of time.
- Less redemption- The options for redemptions is very less
- Time period- You should accumulate points and then redeem, it is very time consuming.
Cashback Vs Reward Points Credit Card
Process of redemption
Essentially, cashback programs allow you to earn a fixed percentage of your spending back in the form of cash. This means that every time you make a qualifying purchase, a portion of that money is returned to you. It’s a simple and effective way to get a little extra back from your regular expenses.
In a points-based system, you are given points for every purchase. These accumulated points can then be redeemed for discounts, exclusive products, or other benefits. It’s a straightforward way to essentially get more back from your purchases.
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Accumulation
Cashback programs typically involve accumulating a fixed percentage back on each purchase made. This percentage is usually applied directly to the amount spent, and the cashback is often redeemable relatively quickly or applied as a credit to your account.
In contrast, rewards points programs often require accumulation over a longer period before they can be redeemed. The value of these points can vary, and their redemption options might be more diverse, ranging from merchandise to travel, but they generally require a significant number of points to be useful.
Ways to redeem
Cashback provides a remarkable level of flexibility, allowing you to redeem your earnings in various practical ways. You can use cashback for everyday shopping, settling bills, or even contributing to your savings, among many other possibilities.
In contrast, the redemption options for reward points are often quite restricted. Typically, you can only redeem reward points through specific product catalogs or a limited network of partner firms, which can sometimes make it challenging to find something truly valuable or relevant to your immediate needs. This flexibility of cashback makes it a much more versatile and beneficial option.
Usage
Cashback programs are simple to use and understand. The core idea is that customers would not need to make any additional efforts beyond their regular purchases to earn rewards.
Reward points would be automatically calculated based on these purchases, with a clear percentage applied to determine the value. This transparent system would allow customers to easily keep track of their accumulated points and decide when and how to redeem them for future purchases.
Preference
Cashback is preferred by those people who want quick redemption. Cashback amount is directly provided on purchases and the user gets direct benefit on the transaction.
Reward points are preferred by those who would like to keep collecting points and then redeem them at a certain period of time. It is provided as perks on travel, shopping, hotel stay, restaurants and much more.
Takeaway
When you are selecting which one is best between cashback and reward points you should consider your preferences. If you want quick benefits and straightforward advantages, prefer cashback. If you want benefits to be accumulated over a period of time and then redeem them reward points are best for you. Choose for the best service provider for added advantage for either cashback or reward points