In the present-day digital era most financial transactions happen online. The offer of price discount is a factor that encourages online transactions. Companies like Amazon and Flipkart offer a bunch of discount offers for their customers who tend to make purchases online. Nowadays, discounts alone don't matter to buyer and seller. 'Cashback' too is significant for them.
Cashback is a new trend in the online market - it simply doesn't give discounts but puts a certain amount of money in the customer's electronic wallets, which they could avail for the further transactions. Cashback, in a way, spurs the customer to make future purchases online itself. The process ensures that both the company and customers gain -- the customer always has extra cash for purchases and the company has enough money left in the customer wallets which assures further sale and, importantly, customer loyalty.
Today, a lot of companies are offering cashback and Paytm is ahead in the high-stake race in this arena with 100 million wallet users and at least 60 million transactions per month.
Why cashback?
Cashback serves two-fold benefits to customers: they can avail discounts and also use the cash for future transactions.
Cashback is crucial in e-commerce for the following reasons:
1) Customer loyalty
Cashback ensures repeat-purchase, i.e., with money in the digital wallet customer returns for another purchase. The method is a way to ascertain that your customer sticks with you. Nowadays, with more and more discount policies, customers shift to the platform which offers more discount. Cashback shelters the domain and see to it that the customer returns to it. For example, a company which sells a smartphone for Rs 30,000 offers cashback of Rs 5,000 and by this ensures that the customer will get back to their site and use the money in the wallet for future purchases. Customer loyalty is a hard value to gain and most customers are price-sensitive. They'll undoubtedly switch to the site that offers more discounts and offers.
2) Reducing the use of solid money
Everyone hates frequenting to ATM for money. Nowadays, even small shops provide access to Paytm facilities. Cashback offers ensure the digital flow of cash by reducing the use of solid cash.
3) The advantage of e-wallets
Every company is trying to get their customers to drop their cash in the potential e-wallets. Paytm is the prime dealer in the e-wallet arena. Experts say e-wallets are the future for financial transactions and big guns like Google and Apple are competing to take a lead in this space.
For customers, especially shopaholics, cashback undoubtedly works as a boon. For the market places too, they work well by upgrading the revenues and validating the customer affiliations. The major question that arises is that will the providers be interested in prolonging the investment scenario or not.
Companies have to find a way to safeguard their burn rates and try make their processes more effective. A lot of startups are being shut down due to the cash crunch. In this light, it's not easy to presume that the scenario will continue for long as start-ups have begun battling for their survival.
How does cashback work?
Several e-commerce platforms were providing discounts from 40-50% and they were providing it from the investor's cash. It's as plain as daylight now that as they suffer from high burn rate, especially when they are yet to make profits.
To better understand cashback, we need to look at the structure and model of platforms providing cashback like Paytm. Paytm wallet enables users to deposit virtual money with the company. The e-money/virtual money is spaced in a guaranteed-account with the bank. Hence, the company avails interest from the virtual money secured in the customer's account and this adds much to the company's total profitable income. When the user gets a cashback offer, he/she will most probably spend it for a mobile-recharge or the payment of bills. In any case, the company secures a commission of 2-10% from the telecom department/sellers. In this way, mobile wallet has more of a strategic value than just as a means of revenue.
