Cashback: A penny earned is a penny saved

15 min readOct 23, 2020

There are up-front discounts, there are loyalty points, and if you merge some features of the two, there is cashback. Cashback is earned by subscribing to a cashback programme that allows you to earn a percentage of an amount spent to be used as a discount on future purchases.

Cashback can be earned on everyday spending on things that you need, from groceries and electronics to furniture and luxury goods. It can be maximised by making adjustments on where you spend, when you spend, how you pay, and when you redeem points for cash value.

We will take a look at what cashback is, how it works, why it works, and some examples, with math, of the savings that you can benefit from.

As a reminder, the purpose of this article is not to encourage you to spend more. In fact, it is the exact opposite: to encourage you to milk every penny and benefit more from your current spending, and in doing so, effectively spend less.

What is cashback?

Cashback is a form of discount that is given or usable only after the initial purchase that can be applied to a future purchase. The buyer would buy something from a store and make payment up-front and will subsequently receive, either immediately or after a stipulated time, a percentage of the amount paid that goes into a payment facility (cashback wallet, e-wallet or similar) as points by the cashback programme. These points may represent the actual value of the discount in the local currency, or be exchanged at the prevailing ratio of points-to-local-currency.

This cashback can then usually be used at the same establishment or within a group of establishments, which makes it similar to loyalty vouchers. Some cashback programmes allow the cashback to be withdrawn as cash, effectively placing no restrictions on where it can be spent.

Cashback programmes can be managed by different groups, such as credit card companies, co-operatives, department stores, rewards companies, e-commerce companies, and so on, with the intent of encouraging repeated spending at the establishments under their purview.

There are other names for cashback, such as rebates, points, rewards vouchers. For the purpose of this article, cashback would refer to any programme that allows you to regularly accumulate points from consumer spending and subsequently exchange those points to offset future spending at a rate that is worthwhile (I would define this loosely as at least 2% and preferably above 5%, depending on the type of good, averaged across all spending). That said, I would exclude the following types of cash rewards:

One-time vouchers for time-bound promotions, such as shopping vouchers or discounts on cross-sold products given to you for the purchase of an insurance product within a promotional period.
Credit cards rewards programmes that award points for consumer spending, as the exchange rate of points for cash is usually at a rate that does not make it worthwhile.
Credit card rewards programmes that award cashback on spending; these behave more like up-front discounts, as the points or cash back earned are used to offset bill payments for the current billing cycle, and the payments on transactions are already deferred, by virtue of how credit cards work.

How cashback works

To benefit from cashback, you would need to subscribe to a cashback programme to start earning points. You provide some of your personal details and in some cases your credit card details, which the cashback programme manager would be bound to protect by local laws and regulations. In exchange, an account is opened for you that would track your spending at establishments managed by or marketed by the cashback programme.

How your spending is tracked

Your spending needs to be tracked in order to calculate the points to award to you for each transaction. It can be tracked in various ways, which include the examples below for which I will be giving illustrations on the benefits they provide in a later section:

Presenting a physical or digital card to indicate membership in a loyalty programme to earn points in. My personal favourite among these is the Starbucks card.
By making payment using a mobile application. My personal favourite among these is Fave.
Arrangements between the cashback programme manager and financial institutions to get details of spending on your credit card. My personal favourite among these is Shopback.

Calculation of points or cashback

The number of points to be awarded to you is calculated from the transaction value to the establishment for the tracked payment. This is calculated at different rates and for different denominations, with some examples below:

A local department store I occasionally spend at awards 60 cents for every full $10 spent (and none for residual amounts less than $10)
The petrol station where my car gets its petroleum fix awards 1 point for every litre of petroleum purchased
My Starbucks card awards 0.1 points for every 10 cents spent using the Starbucks stored-value card
In-store spending at a coffee shop I frequent awards 10% cashback on the entire amount spent down to the last cent when I pay using FavePay

Limitations on spending to be considered for points

As with credit card rewards, there may be limitations on the transaction amount from which points can be earned. The terms and conditions differ for different programmes or for different establishments, and these are made clear to the consumer, thus it is important to read these terms and conditions before spending in order to avoid disappointment and misunderstanding.

These limitations are usually reasonable; they may be governed by law and also help to ensure the sustainability of the cashback programme. Some examples of such limitations are:

No cashback to be earned on service charges or government taxes
Transactions on certain categories of goods are excluded, such as alcoholic drinks, newborn infant milk powder
The maximum amount of cashback that can be earned from a single transaction or a single establishment per month may be capped
Time periods on which cashback can be earned exclude peak periods

Redemption of points or cashback

The approach for the redemption of points differs for different cashback programmes. The points-to-cash-value exchange rate would differ for different programmes and there may be promotional periods where the rates are more beneficial to the consumer, so it is also important to consider when you redeem the points if that is within your control.

Some approaches for cashback redemption are:

Automatic redemption on your next purchase at the same establishment, with any remaining amount stored for further future purchases, without any choice by the consumer of whether or not to redeem, e.g., Fave automatically uses the cashback earned for your next payment at the same establishment using their mobile app.
The consumer is given a choice at the time of purchase of whether to redeem and how many points to redeem, e.g., Starbucks allows you to exchange accumulated points for food and beverage items at the time of purchase.
Points can be redeemed for actual cash that can be withdrawn into a bank account, e.g., Shopback uses this approach for accumulated cashback earned, with a minimum withdrawal amount.
The consumer can exchange points for vouchers to be used at a specific establishment or a group of establishments at any time by making a request to the cashback programme, and use these vouchers at any time before their expiry, e.g., Chope, an app that focuses on services provided by food establishments, allows consumers to exchange points for restaurant vouchers, subject to terms and conditions such as where and when they can be used.

Note: In most cases, cashback can and does expire, so it must be used by a given deadline, after which it will be forfeited. The cashback programme would usually state these deadlines clearly and may even give you reminders that your accumulated points are about to expire. Further, when points are redeemed, the remaining amount of the transaction might not be eligible to earn points. It is important to keep track of these deadlines and know the terms and conditions of the programme to avoid disappointment and misunderstanding.

What’s in it for… well, everyone?

As in most things, these programmes can only be sustainable if it mutually benefits all parties in the transaction: the establishment, the cashback programme manager (if different from the establishment), and the consumer. This mutually beneficial arrangement is present when the purpose of such programmes includes the following:

Encourage you to spend more at the same establishment, as a returning customer, by giving you discounts off your future purchases
Track information on your spending habits, so that relevant goods and services can be recommended to you (up-sell or cross-sell)
Reward you for spending at an establishment that is marketed by the cashback programme, whether as a new customer or returning customer
Reward you for referring others to the platform and extending its marketing reach
Encourage you to spend at establishments marketed by the cashback programme, often by offering up-front discounted vouchers in addition to or in place of cashback, or by managing a loyalty programme for these establishments
Offer an additional mode of payment that would not normally be available at the establishment, e.g., credit card payments at a smaller establishment

How establishments benefit

Establishments pay a certain fixed amount, a base subscription and percentage of transaction amounts, and additional payments for ancillary services, to the cashback programme provider. In return, the cashback programme provider displays the details of the establishment in searches on their platform, based on distance, review and visitor ratings, category, ongoing promotions, or other criteria, thereby encouraging more visits to the establishment. The establishments would also benefit from an additional mode of payment via an e-wallet or a payment function within the platform. They may also be given data on what type of consumers are spending at their establishment, and when and how much they are spending, which enables the establishment to tailor their marketing efforts accordingly.

How the consumer benefits

As the consumer, in exchange for providing your personal details, you avail yourself of the promotions and discounts advertised on that platform and earn points that can be used to offset future spending. In addition, your analysis paralysis is kept in check by using the platform to help you narrow down your choices based on your criteria, i.e., it’s easier to decide where to eat and buy… stuff.

How the cashback programme provider benefits

The cashback programme provider earns from the establishment, from regular subscriptions and/or a cut of the transaction amount. They also get access to spending data and consumer demographics, which they can use to enhance their programme or derive aggregated and anonymised statistics that can be provided at a fee to researchers, payment services providers, or data providers.

Differentiating factors for cashback programmes

There are many cashback programmes out there that reward us for spending on everyday items. This is how I would compare them, from more important criteria to less-but-still-important criteria:

Cashback Rate: Amount of cashback that can be earned from spending, both during normal periods and during promotions with better points-to-value exchange rates
Earning Coverage: The breadth of services and types of goods that the platform allows the consumer to earn cashback
Redemption Choices: Whether the consumer has a choice of when to use the points earned, how much of it to use at a time
Redemption Coverage: The flexibility of where the cashback can be used
Multi-dipping Potential: Whether the cashback programme still allows you to earn points in other rewards programmes such as credit card rewards or e-wallet rewards

Essentially, the more points you can earn from spending, the more places you can earn from spending, and the more options you have on where and when you can redeem your points, the better the cashback programme.

Not all programmes have all of these, and what is better for an individual depends on his or her spending habits. For example, if you visit specific department stores, e-commerce sites, or food and beverage outlets often, one or more cashback or rewards programmes that cover those outlets with good-enough rates would be suitable for you.

For me, personally, the cashback programmes that I subscribe to and for which I give examples for in the next section are the ones which benefit me most for my spending habits.

Some math behind the savings

In this section, I will illustrate examples of how I benefit from three cashback or rewards programmes: Starbucks card, Fave, and Shopback.

Starbucks Rewards

The Starbucks rewards programme in Singapore, in a nutshell, works as follows (for more specific and precise information, please visit their rewards website):

You subscribe to the rewards programme, start at a certain tier and accumulate points on spending over one year, which will determine your tier in the following year. Different tiers entitle you to different benefits within the membership year.
You are given a membership card, which may be digital (on the Starbucks app) or physical, which you would need to scan at the counter during payment in order to earn points.
For every ten cents spent, you normally earn 0.1 points. There are promotions and promotional periods during the year during which you can earn double or triple points.
At the point of purchase, if you have enough points, you can choose to redeem them for drinks or food items. 60 points entitle you to a drink or food item of your choice, regardless of its price (there may be limitations on the choice of food or drink item, but I have not experienced this yet, and I’ve been doing this for years)

In terms of their rewards programme, it can be used in the many Starbucks and Starbucks Reserve outlets in Singapore with some exceptions (e.g., outlets at Changi Airport terminals). I spend at Starbucks about once every 2 weeks, an average of $14 each time (about two customised Grande-sized drinks) after discounts, which may come from the Starbucks membership promotions or from using my own tumbler. During a normal period, this would earn me about 14 points every two weeks, but it can go up to 42 points during ongoing promotions (triple points for a limited number of days, or double points for ordering via the app).

When I make a redemption, I use 60 points to buy an expensive drink of the largest size, which for me would usually be an $11 hot Venti beverage at a Starbucks Reserve outlet. Doing the math, that is at least 18.33% rebate for me ($11 discount for $60 spending) and could go up to 55% ($11 discount for $20 spent on promotional triple-points earning).

FavePay

Fave has two types of cashback, which they explain here. The type of cashback that I earn is the second one described there, which is Partner Cashback. This is a percentage of the bill excluding “any amount paid with promo codes and cashback”. I have been using Fave for a few years now, and in that time, I have seen their coverage grow significantly, such that it covers a wide range of establishments, including coffee shops, cafes, groceries, convenience stores, laundry services, and furniture. Some of these I already frequent; for others, it doesn’t hurt me to pay using FavePay as there is a chance I would return to the same establishment.

For the past eight months, as a result of the COVID-19 outbreak, I have been working from home, and have been frequenting coffee shops and cafes near home. There is one which I go to for lunch almost daily, spending an average of $7 a day. Fave offers 10% cashback at this coffee shop that is automatically used to offset my next purchase at this coffee shop, so in effect I get a perpetual 10% discount. Over a month, this adds up to about $21. Oh, and this cashback can be used at any of that coffee shop’s outlets, and there are two nearby, so I can experience a slightly different ambience.

Besides this, outlets where I can use FavePay, the payment feature within the Fave app, display their association with Fave clearly at their checkout counters. Furthermore, I can also search for outlets with this facility near me, so I can choose to spend at these establishments if I wish. The usual cashback rate ranges from 1% to 8% at these other outlets, sometimes with a cap and most times with no cap. One example where I used FavePay is Comfort Design, a furniture store, where I earned 1% cashback from purchasing a $400 office chair for use at home (a COVID-work-from-home-driven purchase).

Fave helps me to earn between $40 and $50 a month in cashback. As for actual savings per month (it does require a second or subsequent visit to the same establishment to use the cashback), this is between $25 and $35. Some of it does expire, but that’s okay for me as I would have visited those establishments anyway.

If you’re thinking of signing up for Fave and you’re based in Singapore, use my referral link so that we each get S$1.

Note: As FavePay is a payment facility, credit card points may not be earned for payments using FavePay. If credit cards points are important to you (and also if they aren’t), refer to the terms and conditions of your credit card for details on types of payments that are not eligible for earning credit card points.

Shopback

There are at least two ways to earn cashback using Shopback: In-store (Shopback GO) or via their app for online purchases. For more precise information, please visit their “Get to know Shopback” page.

For in-store transactions, how it works is that you have to register your credit card details on the Shopback app, which they will not store on their platform but will instead work with a security partner to process the details. This is great because you can earn cashback unknowingly by using that credit card at stores that are registered with Shopback. For online transactions, you have to start the shopping experience from within the Shopback app, so that the purchase can be tracked.

The cashback will only be credited into your Shopback account some time later, which could be a week to a few months later, depending on the establishment. There are also different cashback earning rates for different establishments or e-commerce sites, and for different categories of products. All these are made clear within the app, so you have to read them to avoid misunderstanding. What I really like, though, is that their support team is responsive and resolves issues well. I’ve had two cashback disputes and one service request (entered wrong email), and they were handled well, even though the outcome of one of the cashback disputes was not in my favour.

Where they score is in the breadth of establishments and online stores from which you can earn cashback from your spending, some of which are well-known brands, such as Lazada, Amazon, Guardian Pharmacy, Fairprice, iHerb, which covers a wide range of goods including groceries, electronics, sports equipment, health supplements, baby-related goods.

The cashback earned from purchases are also reasonable. For in-store payments, the cashback earned from 1% to 8% rebates, with the possibility of one-time “boost” for earned cashback for some establishments, that could reach 25%. For online shopping, for the things that I buy through the app, the cashback ranges from 2% to 10%.

Some examples of cashback I have earned via Shopback:

Baby and child products that I buy regularly on Amazon such as milk powder, diapers and wet wipes earn 6% cashback. Couple that with Amazon Prime membership for fast and free delivery. Typically in a month, that’s about $4.50 in cashback, which is only credited many weeks later, but that’s okay, I can wait because I know it will come.
Effervescent tablets and other medical supplies that I buy online from Guardian Pharmacy via the app earn 5% cashback. I spend about $40 per month on average for these, get free delivery, and earn about $2 a month in cashback.
I buy things from iHerb about once every two months and spend about $80 each time. It earns 3% cashback on Shopback, amounting about $1.10 per month on average in cashback earnings.
For in-store purchases or in-restaurant payments to Shopback merchant partners using the credit card I registered via the Shopback app, I spend about $80 a month and earn between 1% and 3% cashback. This adds up to about $2 a month in earned cashback.

The above total up to be almost $10 per month, and it could be more, but I have my preferences for certain categories of items and those are not on Shopback (yet), so I don’t benefit (yet). Shopback’s list of merchants is growing, and my preferences may change, so there’s hope of higher cashback earnings.

What’s also fun about Shopback is that you can track your lifetime cashback earned, and for a cashback enthusiast like me, that is just candy to my eyes. If you’re based in Singapore and would like to sign up with Shopback, download the app and sign up with my referral link so that we can both get S$5 in cashback. You can thank me later!

Optimizing your cashback entitlements

Split one transaction into multiple transactions

For some platforms, the cashback earned can be used at the next purchase, which could possibly take place a few seconds later. Thus, to maximise the cashback, especially when I have to buy multiple items from the same store or where I know a future purchase is unlikely, I would make a relatively larger purchase first, and use the cashback earned from that larger purchase to offset the amount to be paid on a smaller amount. In the examples I gave, this could apply for Shopback and FavePay.

Rewards on multiple fronts

Double-dipping is also possible with Shopback and FavePay. For FavePay, I would top-up my GrabPay wallet and use that to make payments on FavePay. The points rewards rate for GrabPay is relatively insignificant, but the main benefit here is the cashback and it doesn’t hurt to earn a few more points in addition to that! For Shopback, payments are tracked via the app or by getting data from financial institutions, and these payments are made directly to the service provider; the funds do not go through Shopback. As such, these transactions would be eligible for credit cards rewards points or miles earning too, for both online and in-store transactions.

Conclusion

This has been a long and wordy article, in which I’ve attempted to explain what cashback is, and how it benefits you, with some personal examples from my favourite cashback programmes. I hope that you’re convinced that with cashback, a penny earned is, eventually, a penny saved!

I appreciate any feedback and constructive criticism, so please let me know if you have any.

Finally, clap me if you can!