| 3 minutes read

3 minutes read

This Is How Banks Manage To Give 10% Cashback On Online Shopping

| Published on November 8, 2018

If you are familiar with online shopping, you must have enjoyed the discounts e-commerce websites offer. Especially during the festival sales, when these platforms associate with banks and other finance companies to provide maximum benefits to the customers.

Earlier we gave you an idea about how companies like Paytm and FreeCharge work, and today we are sharing how banks provide cashbacks during online sales.

Recently, during the Diwali sale period e-commerce giants including Flipkart and Amazon offered discounts on using special cards. Most of the times there are extra 10% discount offers on the usage of HDFC, SBI or City Bank cards. Now, you must be wondering how these cashbacks work and why banks associate with e-commerce companies?

For knowing this, we need to understand how these banks actually make money in the modern era of cashbacks and discounts other than the traditional way of earning by generating revenue from the difference between high-interest rates on loans with respect to low-interest rates on savings accounts.

Let us explain you the traditional model of banks in the simplest manner:

The money we invest in banks is used by banks to earn interest, after earning some profits out of our money, they return it when we need.

Now, with e-commerce sites, the investment of public takes place indirectly. This is because if a bank tries to offer you a direct discount, then they will have to pay the offered discount to the retailer at the time when you will make the purchase. Hence a less transaction amount.

Time period

By offering cashback, banks keep your money with them for a specific period of time and will promise to credit the cashback amount to your bank account after that period. Most of us ignore that time period but banks generate revenue from it. Normally, this time period ranges from 60 to 90 days.

Charges on credit and debit cards

Another reason why banks offer cashback is that they want customers to purchase products through debit and credit cards on E-Commerce websites. With this, banks can charge transaction fees which is roughly around 2.87-3.96% or even more depending upon a lot of factors.

As a customer, you don’t have to feel cheated as most of the times e-Commerce websites pay for that.

Getting more people to open accounts

Also, we shouldn’t forget that due to these cashbacks, people tend to open their accounts in these banks which helps them to get new customers who can be potential loan seekers in the future.

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