Cashback credit cards are a particular type of rewards credit cards, which reward customers for spending by giving them a specified percentage of the cost of the purchase back as cash.
Unlike traditional points-based credit card reward schemes, which offer their customers points toward loyalty programs as they spend, cashback is a relatively simple concept for customers to understand. It is a tangible benefit that can be used universally, it requires no additional input from the customer in selecting rewards from a loyalty catalogue, and it enables customers to spend in their usual manner without needing to increase their spend to earn enough points for a particular desired reward.
This simplicity, together with the increased familiarity of the cashback concept that ‘cashback websites’ have fostered in recent years, has helped these products challenge more established points-based rewards card programs in the UK market.
As credit card issuers have responded to increased consumer appetite for cashback card products, the choice of product has increased. This increased choice has added complexity of finding the best cashback credit card, but it has been largely beneficial for consumers.
Cashback credit cards now exist that cater to various different circumstances, for people who are very affluent through to those on lower incomes (and even those with bad credit histories). Also, the once familiar ‘Annual Fee’ that was traditionally incurred by those with a cashback credit card can now be avoided, since fee-free cards are now commonplace.
Cashback credit cards were once the preserve of people with good or excellent credit scores. However, as the UK recession drove people with previously impeccable credit histories into arrears and default, the market shifted. Demand for bad credit credit products surged and the profile of the people applying for them changed. People who could once access some of the best UK credit card offers found themselves applying for credit building products to re-establish their credit profile. As the market for bad credit credit products grew, issuers responded with innovative products, some including features traditionally associated with prime credit card offerings, like cashback.
As such, credit card cashback (albeit at varying rates), is now widely available – even for people with bad credit, or unusual financial circumstances.
Although cashback is a simple and tangible benefit for people using their card, it should certainly not be the primary consideration for all applicants.
Cashback rates, even the highest introductory rates, rarely get above 5% cashback. If an applicant regularly struggles to pay off their full monthly balance, a cashback credit card is unlikely to be a suitable product. This is because the interest they will accrue on their unpaid balance is likely to far exceed any cashback they might receive on their purchases.
Even those who do clear their balance in full every month may find that a cashback product is not as beneficial as they might presume. A number of cashback credit card products cap the amount individuals can earn in cashback. In some instances this is purely a cap on the introductory cashback (which is effectively loss-leading cashback for issuers - using it to attract new customers), but these caps also exist elsewhere - often on particular spend categories of purchases for category-variable cashback cards.