‘Double-edged sword’: Pros and cons of cashback services

Westpac has expanded its partnership with cashback platform ShopBack.

Westpac has expanded its partnership with cashback platform ShopBack. Photo: AAP

Australians have been warned to consider the pros and cons of cashback services amid an expansion in their availability, with one expert warning about potential pitfalls.

Major bank Westpac has recently expanded its partnership with ShopBack to customers across its smaller brands nationwide, including the Bank of Melbourne, BankSA and St.George Bank.

The partnership means customers can link their debit cards to ShopBack’s platform, which offers kickbacks to customers who shop online through approved websites and retailers.

Westpac says its customers have claimed $18 million in such benefits in the past year alone, more than a quarter of them from travel products purchased on the platform.

But while that might seem tempting, financial adviser and Sort My Money founder David Rankin said there were potential pitfalls to using a cashback service.

Rankin said cashback services were a “double-edged sword” that could catch out shoppers, particularly if the offers presented on the platform convinced them to spend even more cash.

“As a spender, for example, you will probably spend even more. And if you have already fallen foul of BNPL (buy now, pay later), don’t even think about cashback,” Rankin said.

“If you are naturally shrewd with your money, though, it will probably make you even more savvy, by landing you even better deals.”

How cashback services work

Cashback services like ShopBack work as referral engines where retailers and other online merchants pay the platform a fee to have their products marketed to members.

The platform then takes some of that fee and pays it out to customers as “cash back”.

There is, unsurprisingly, much fine print in the terms and conditions of such services.

To use ShopBack as an example, it requires users to restrict how they’re shopping online to be eligible for cash returns in some pretty specific ways.

Examples include:

  • Shoppers are not allowed to open a separate tab or browser while using the platform or a merchant partner’s website
  • After the platform redirects them to a partner website, shoppers must complete a sale before proceeding to “any other website”
  • Shoppers must make a purchase on the merchant’s website within a “given period”.

At face value that doesn’t seem too bad, especially when cash rewards are on the table.

But as financial adviser and On Your Own Two Feet founder Helen Baker said, the ability to shop around, consider other offers and come back later are key to being a savvy shopper.

Be aware of the risks of using cashback rewards before you buy. Photo: Getty

“I like the idea there are discounts because that’s always good, but the problem is the detail that sits in behind it,” Baker said.

“The products can be more expensive than they should be to start with.”

Consider a situation where a cashback platform points you to a retailer selling televisions, offering you 5 per cent cash back if you purchase a $500 product from an approved dealer.

That sounds good, but it’s possible that the same product is available for $400 on special at another retailer, which means you could buy there instead and save even more money.

Some of the deals can also induce people into overspending, Baker said, using an example of a 15 per cent discount that comes with a $100 minimum basket size attached.

“Coles had a 15 per cent discount, which is great, but you had to spend $100 to do that,” Baker said.

“That might be quite easy for some people, whereas others might be at $95 and then they go and buy something to get the discount.

“If they need it it’s good, but often what happens is they are actually changing our behaviour.”

What kind of shopper are you?

Rankin said cashback services could be useful for customers, but that it really came down to what sort of shopper we are.

“If you often use the ‘-aholic’ suffix to describe your personality, you would be well advised to give cashback a miss, because once you get into it, the app in question will be calling the shots,” he said.

“If, though, you are innately disciplined, you are more likely to be driven by needs not wants and to use cashback as a means to an end, such as buying those shoes – which you know you need – for a better price.

“It’s when cashback becomes an end in itself that the alarm bells should start ringing.”

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