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Cashbacks and reward points: There is no such thing as a free lunch

These benefits come with so many conditions and stringent deadlines that you have to shop or travel often to avail of them

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Photo: iSTOCK
Priyadarshini Maji
Last Updated : Sep 23 2018 | 8:25 PM IST
Did you just get an SMS that a cashback of Rs 3,000 has been deposited into your online wallet? Well, before rejoicing check the details. To avail of the Rs 3,000 benefit, you may just have to spend another Rs 10,000 – yes, suddenly the deal doesn’t sound so cool.   

Free money is something that everyone looks for when shopping online. We try to garner cashbacks and reward points to reduce our shopping bills. But as the saying goes, there is no such thing as a free lunch. All these rewards, cashbacks and other promotional tools come with strings attached, which the shopper should be fully aware of.

Cashback is a pre-determined amount or percentage of money that is returned to the buyer on the purchase of a product. Experts say that cashbacks ensure companies do not have to discount their products, and hence do not end up diluting their brands, while still providing an incentive to their buyers. Unlike discounts, they do not offer a flat reduction in the price of the product. You get cashback that can be utilised during future transactions. Cashbacks usually have limits, which range from 5-30 per cent of the amount spent. Cashbacks and reward deals are common now with mobile wallet providers, e-commerce websites, loyalty programme portals, credit card companies and cab service companies offering them. 

Cashback and reward points are different: Reward points are slightly different from cashbacks. Like cashbacks, reward points are given when you make a purchase, but they are not cash. What you get is points. Those points are then converted into cash. The conversion of reward points to currency is not the same in all cases. While some companies treat one point as equal to 25 paise, others treat one point as equal to Rs 1. 

Spend and earn: The process of collecting reward points or cashbacks varies across companies and platforms. Sometimes multiple benefits are offered on one transaction, but you can avail of only one. For instance, on a purchase, if a credit or debit card is offering you a discount, and a cashback is also being offered, you may have to choose between the two offers. However, depending on the nature of the tie-up with the brand, a few apps offer more than one benefit. For instance, in Nearbuy (a deal-booking app), if you are booking seats in a restaurant, you will get the discount being offered by the restaurant on the app. In addition, separate cashbacks may also be offered by the app, which can be used for future bookings via the app. 

Some of the websites and apps offer you additional reward points if you are prepared to disclose your personal information and are willing to give access to your phone's contacts. “Our loyalty reward programme helps members earn more through referrals, sync contacts, updating member profile, business profile and social gratifications, along with bookings on the platform,” says Sanjay Bhasin, chief operating officer, Goibibo. 

The catch in these offers: Though cashback offers and reward points are beneficial, irrespective of whether they are offered by a website, app or bank, they come with conditions attached. 

There are limits on amounts and number of transactions, which are not mentioned upfront. For instance, there could be limits on the number of transactions you can do in a day by using the points or cashbacks. Also, all the reward points and cashback earned can’t be redeemed at a time. For instance, if you are booking a hotel worth Rs 4,000 and you have the same number of points, there will usually be conditions stipulating that you can redeem your points only partially, say, up to Rs 600 per transaction. 

Companies set time limits on cashbacks to enhance urgency and push you to make the next purchase at the earliest. “Higher spends move travellers faster on to the next reward milestone. Depending on the spends of each customer, they are rewarded with cashbacks,” says Saujanya Shrivastava, group CMO, MakeMyTrip.

All online websites and apps have their own timeframes for using these points. The limits for using up reward points usually ranges from one to three months. If left unused on apps, wallets, and websites, they expire.

Cashbacks and redemption of points are sometimes available only if you transact through a particular merchant or a certain network. This type of limitation is most evident in the payment of phone bills.   

Another way of earning cashbacks that has become popular in recent times is by uploading images of restaurant bills. For instance, Dineout, an app for restaurant bookings, offers reward points for signing in and referring to friends. It also offers additional cashbacks on uploading restaurant bills through the app. These earnings can then be used for future bookings in select restaurants using the Dineout app. 

However, the Dineout earnings come with an expiry period of 30 days, and you can only pay 25 per cent of the bill amount in one transaction using Dineout earnings.
  
What should you do?

Rewards  and cashbacks, along with the convenience of net banking, mobile banking, card and mobile wallet transactions create a high propensity to overspend. Don’t end up spending in excess just to bag these incentives. 

According to experts, unlike a flat discount, cashbacks and reward points are encouraged by companies due to non-redemption. People often forget about their accumulated points across apps and websites, due to which they lapse. If you play this game of collecting cashbacks and reward points, keep track of what you have earned and the due dates before which you must use them.    

Become a pro at earning reward points  
  • Many websites and apps offer you additional points in exchange for your personal info
  • You can earn cashbacks by giving access to the contacts in your phone 
  • Uploading images of restaurant bills can earn you reward points  
  • You can earn cashback and reward points by transacting through a particular merchant
  • Higher spends give you faster access to the next reward milestone

Be aware of these caps    
  • There are limits on the amount of cashback/reward points you can use in one transaction 
  • The number of transactions you can do using cashback/reward points in a day is limited 
  • You need to use reward points within one to three months to avoid expiry