Cashback at checkout

Cashback at checkout is one of the more straightforward incentives in eCommerce, but the mechanics behind it vary more than most shoppers realize. This article covers how it works, the main types available, and why retailers use it.

How Cashback at Checkout Works

Cashback is a reward that returns a portion of what a customer spends back to them after a qualifying purchase. The format varies: some programs deposit money directly into a bank account, others apply a credit toward a future purchase, and some issue gift cards or statement credits.

Credit card companies popularized the model, but eCommerce retailers have adopted it as a standalone loyalty tool. The appeal is the same in both cases: customers feel like they're getting something back for spending they were going to do anyway.

How do cashback rewards work?

When you make a qualifying purchase, you earn rewards. These can come in various forms. You might see a direct discount on your next buy, or maybe it’s a deposit into your bank account. Some prefer statement credits, while others like getting a physical check or a gift card.

The Main Types of Cashback

Flat-rate cashback applies the same percentage to every purchase regardless of category. A card or program offering 1.5% back on all transactions keeps things simple. There's nothing to track and no strategy required. The reward is smaller than what's possible with more targeted programs, but it's consistent and predictable.

Bonus category cashback offers higher rates on specific spending categories, which often rotate on a set schedule. A program might offer 5% back on dining for one quarter, then shift to groceries or travel the next. The potential return is higher, but only for shoppers who actively track the categories and adjust their spending accordingly. For occasional shoppers, the added complexity rarely pays off. For high-volume spenders in the right categories, it can add up significantly.

Promotional cashback is tied to specific events, products, or time windows rather than ongoing spend. A retailer might offer 10% back on orders placed during a launch week, or a higher rate for first-time customers. These tend to be short-term and targeted, used to drive specific behavior rather than build ongoing loyalty.

Why Retailers Offer Cashback

Want to draw new customers in? Offer a cashback reward.

The business case for cashback comes down to repeat purchases. A customer who knows they have credit waiting at a store has a concrete reason to return. That's different from a general preference for your brand, it's a tangible pull toward another transaction.

Cashback also tends to increase average order value. When shoppers know they'll earn back a percentage of what they spend, they're more likely to add items rather than cut the cart down. The psychological effect is similar to earning points: the reward feels proportional to the spend, which makes spending more feel reasonable.

For new customer acquisition, a cashback offer can differentiate a store in a crowded category. Two stores selling similar products at similar prices look different when one offers 5% back on the first order. It lowers the perceived risk of trying somewhere new.

The tradeoff is margin. Cashback is a real cost, and it needs to be sized against the lifetime value of the customers it retains or attracts. Retailers who treat it as a variable marketing cost tied to customer behavior tend to get more out of it than those who apply it broadly without tracking the downstream effect on retention.

Cashback works because the incentive is concrete. Unlike points systems that require customers to mentally translate accumulated value, cashback states its benefit plainly. That clarity is a large part of why it continues to be effective across both card-based programs and direct retailer promotions.