💡Hidden secrets revealed: How do cashback apps make money?

In a world where the number of people shopping online is increasing every day, cashback apps are becoming a popular way for customers to save money. In 2022, the global market for cashback apps stood at $3,373.2 million. It’s expected to grow to $6,141.0 million by 2031, with an average growth rate of 6.9% each year.

Cashback apps help customers save money by offering additional cashback and helping online stores acquire new customers. But have you wondered how they make money and where these discounts come from? Are they paying you out of their own pocket? If yes, how is it a sustainable business model?

In this article, we will find answers to all these questions. We’ll discuss how cashback app works, how they earn money, and the challenges they face in building a profitable cashback app.

Let’s start with how the cashback app works.

👉 How Do Cashback Apps Work? #

In simple words, cashback apps act as intermediaries between buyers and retailers. When a buyer makes a purchase from any partner retailer via the Cashback app, the retailer pays a commission to the app for bringing sales. Now, the cashback app pays a part of this commission to the buyer. 

Suppose there is an X retailer listed on a cashback app. Now, if a user makes a purchase from a cashback app on the X retailer, the cashback app will get a commission. Let’s assume that an X retailer is paying a 25$ commission to a cashback app. Now, the cashback app will pay you 5$ cashback, so the cashback app is still left with a 20$ commission, which adds up to its revenue.

Apart from these, there are different types of cashback available on the market. 

👉Types of Cashback  #

🔹 In Wallet Cashback

In-wallet cashback is becoming increasingly popular as it helps them retain customers and build brand loyalty. What happens is that users get cashback in their wallets. For example, HealthKart gives users cashback in their HK Wallet. The user cannot withdraw this wallet; the user can only use it for purchases on HealthKart or their partner merchants. Also, they have an expiry for this cashback, 90 days. So, it makes users keep coming to their platform, to use their cashback on their purchases.

🔹 Credit Card Cashback

Credit card cashback have been in the industry for a long time. Users use their cards more to make payments and they get discounts or cashback in return. There is always a minimum order value associated with credit card cashback. So, brands are now moving towards co-branded credit cards. For example, Amazon launched a credit card in partnership with ICICI Bank. They give an unlimited 3% discount for non-prime customers and 5% discount for prime customers. This helps them increase their revenue as there is no minimum order value for cashback, so customers use their Amazon Co-branded card for shopping regularly.

🔹 Bank-Linked Cashback

We see bank-linked cashback regularly when there are some festive deals or sales. Users pay using Internet banking or a debit card from a certain bank and get cashback in return. Users get cashback directly in their bank account so it becomes more convenient for them.

🔹 Online Shopping Platforms

Users can shop through a platform using a link and coupon code. This platform generally works in the model that we explained above. Platforms get commissions for bringing new customers and the user gets cash back for shopping through a platform. It makes it a win-win situation for both. 

🔹 Receipt/QR scanning cashback

Receipt or QR scanning cashback are usually the ones when users are shopping offline. Let’s say a user is registered on CashKaro and he is buying offline from a registered grocery store. What the user can do is, once they are done shopping, they can upload a Receipt photo to avail cashback, or they can scan a QR code to avail cashback. Grocery store owner has to add details manually, then only users can avail cashback using QR. This method involves dependencies for multiple parties, so there are more chances of discrepancies in transactions here.

These are some of the ways cashback apps offer cashback to their customers, but how do they earn money?

Let’s learn about ways that Cashback apps use to earn money.

👉 How do cashback apps earn money? #

🔹 Affiliate marketing

Affiliate marketing is the primary source of income for most cashback apps. This is exactly the method that we explained above. Cashback apps get commissions from retailers for bringing customers to their platform, and apps pay a part of this commission to the user. The commission varies based on the retailer and product category. 

The time it takes for a user to get cashback is around 60 to 120 days. This is because the sale is verified at multiple ends; if the product is returned, then the Cashback app earns no commission. This whole process takes time and makes sure that everyone- the retailer, the Cashback app, and the user- is getting benefits from this.

🔹 Advertising

Cashback apps also earn money from advertisements on their site. Cashback app attracts a large user base actively looking for online shopping deals, so these apps are an excellent opportunity for retailers to promote their products. There are different types of ads that retailers can show, from banner ads to sponsored product listings; cashback apps offer a wide range of options to retailers.

Cashback apps use data analytics to optimize their ad placements for maximum conversions. This targeted advertising benefits retailers as the audience coming to cashback apps is already looking to buy something. It helps retailers in increasing their conversions. Cashback apps get a steady source of income with advertisements because retailers are often ready to pay premium rates for this kind of targeted audience. 

🔹 Data monetization

Since so many people visit cashback apps daily, they have a ton of data, including users’ shopping habits, preferences, and buying behaviour. This data can be incredibly helpful to target ads, market research, and optimize marketing strategies. 

For example, a cashback app can analyze purchase trends to identify top-selling products and predict future preferences. This data can be used by retailers for optimizing marketing campaigns, developing new products, and building pricing strategies. 

Cashback apps can monetize these insights to retailers, marketers, and firms. And since these insights are very advanced, Cashback apps can charge a hefty fee for access to these insights.

🔹 Subscription fees

Some cashback apps have introduced subscription fees or premium subscriptions in their apps to diversify their sources of revenue. The benefits of premium subscriptions include extra discounts, and premium support, ad-free browsing, and early access to deals and promotions. 

This premium subscription doesn’t just help cashback apps to increase revenue, but it also helps in motivating users to transact more through their app only. 

🔹 Partnerships and collaborations

Cashback apps often partner with financial institutions and payment gateways to offer integrated services. For example, a Cashback app might launch a co-branded credit card in partnership with banks to offer additional cashback on purchases made through the app. In a similar way, they will partner with payment gateways to streamline the checkout process, making it more convenient to earn cashback.

Normally, the cashback app will earn money from referral fees or a share of revenue from partners. They earn revenue for every user who signs up on a partner platform and completes a transaction.

These are the few ways cashback apps earn money. However, cashback apps aren’t the only ones that earn money from them; both retailers and users get benefits as well.

👉 How Do Retailers and Users Benefit from Cashback Apps? #

Benefits for Retailers: #

  • Increase in Sales and Customer Acquisition: Users earn guaranteed cashback from Cashback apps, which makes it a go-to option for buying products through the app. So, by partnering with cashback apps, retailers can increase their sales and acquire more customers. 
  • Loyal Customer base: Customers are usually more loyal when they get certain benefits. And with cashback apps, they get a discount every time they buy something. It makes users more likely to return to a store where they are rewarded.
  • Targeted marketing: People who come to cashback apps usually come with an intent to buy. It makes it a perfect place for retailers to run ads and marketing campaigns on cashback apps. These campaigns often deliver higher conversion rates. It comes at a premium price, but retailers get higher conversions, so it’s worth the investment. 
  • Valuable Data Insights: Cashback apps have a ton of data including customer buying patterns and most purchased products. Retailers can use these insights to promote their products and deals. Retailers can set prices and build new products based on these insights. These insights can help them optimize their marketing strategy for higher conversions.

Benefits for Users #

  • Cashback on every purchase: Users earn cashback on every purchase, which is a primary factor for most customers to keep coming back to the app for a rewarding experience.
  • Exclusive deals and discounts: Cashback apps often provide exclusive deals and promotions, which are over and above the existing discounts on the retailer store. It helps users save extra money and motivates them to buy more products.
  • Convenience: Users get cashback and discount offers from multiple retailers in one place so they don’t have to go to every single store to check the best deals. It saves time and simplifies the shopping experience. 

Though there are so many benefits for retailers and users, there are a few challenges that should be considered while developing a cashback app

👉 Challenges to Consider in Making Cashback App Profitable #

Competitive cashback rates: Cashback apps have to make continuous updates to offer better cashback rates to attract and retain users. The cashback app market is saturated so it is tough to balance profitability with attractive cashback rates.

Building strong retailer partnerships: The cashback app heavily relies on its partnerships with retailers. Building and maintaining these partnerships requires a unique value proposition that attracts retailers.

User Acquisition and Retention: Acquiring new users and retaining them is important for the app’s growth and profitability. It requires effective marketing strategies, a user-friendly interface, and continuous engagement strategies to keep users engaged.

Fraud Prevention: Cashback apps must implement security measures that prevent fraudulent activities like fake accounts and unauthorized transactions. It can lead to financial losses and also damage the app’s reputation.

Data Privacy and Security: Cashback apps must comply with the data protection regulations to protect user data while monetizing their data, as it can lead to huge fines which can be a roadblock in the app’s profitability journey.

Technical Scalability: Cashback apps must be developed with scalability in mind. As the user base grows, the app must be able to handle increased traffic and transactions without compromising the user experience.

Adapting to Market Changes: The e-commerce and retail industry is constantly changing, and most cashback apps operate in these spaces because of higher profit margins. So, the cashback apps must be updated with the latest market trends and adapt to them to stay relevant and attract users.

Addressing all these challenges requires a strategic approach and a focus on creating a sustainable business model. 

Our team at EnactSoft can help you build a cashback app that can drive profitability. With 11 years of experience in building cashback and coupon apps, we are proud to call ourselves an expert in this industry. We’ve developed a number of Android and iOS apps. Our team is dedicated to offering 360 degree support from design to development, maintenance to support. 

Contact our team today and leverage our expertise in building a scalable and secure cashback app.

👉 Conclusion #

Cashback apps are not just another trend; they are going to be part of future shopping, and they are here to stay for a long time. With more and more people shopping online, these apps provide a convenient way to save money for users and attract new buyers for online stores.

While there are challenges in building a successful and profitable cashback app business, the opportunity is huge. By focusing on providing real value to users and retailers and strategically building their marketing strategy, Cashback apps can strive in the competitive market. 

You just need the right team with you that can guide you in the right direction!