Cashback: the “money back” fever in Brazil | Finance

Buy, pay and get part of the money back. As well? That’s the question that a lot of people ask themselves when they see a store talking about cashback (money back, in free translation). Whoever adheres to the idea quickly leaves mistrust aside, however. The reason is simple: if properly implemented, cashback works for everyone, from consumers to retailers.

The concept is not new, but only recently has interest in the subject exploded in Brazil. Specialized cashback platforms, such as Méliuz and Love Digital, are increasingly popular in the country.

Despite this, some doubts still remain in the air: how does cashback work? What care should I take with this? Will I get rich by getting money back? About the last question, I would like to say no. About the others, I invite you to the next paragraphs.

Is cashback discount? Not quite

It is easy to imagine cashback as a discount. You buy a product for an amount and then a percentage of the amount disbursed comes back to you. This approach makes the product cost less in the long run. Under this view, the effect is really that of a discount.

Wouldn’t it be easier, then, for the shopkeeper to advertise the product with the discount already applied to use the lower price as an attraction? Not if we understand the dynamics of cashback.

Bruno Diniz, Latin America leader of the Financial Data & Technology Association (FDATA) and author of the book The Fintech Phenomenon, explains to Tecnoblog that the concept works as a “win, win, win” relationship: both the consumer, the shopkeeper and the platform that makes the operation feasible when a money-back transaction is carried out.

How? First of all, we have to understand that, in the price composition of a product, it is not uncommon for the shopkeeper to include a commission percentage. This is the amount that will be paid as a premium to the seller of a physical store, for example.

On the Internet, commissions are usually paid to websites or profiles on social networks that, through an affiliate program, refer products from an online store and receive a percentage for each sale completed.

This is where cashback begins to take shape: cashback platforms help physical and online stores to make sales, receive commissions for this and pass on part of these values ​​to the consumer. This is basically how the money goes back to the buyer without any of the parties having a loss.

Real coins (image: Emerson Alecrim / Tecnoblog)

Why cashback works

Offering promotional prices or giving margins for a seller to offer discounts are very effective weapons to convince a person to close a purchase. But cashback can go further by exploring a powerful convincing mechanism: reward.

It is as if, in addition to the satisfaction of purchasing a product or service, the cashback made the person feel rewarded for having carried out that transaction or, even, ended the operation with the feeling of having done a great deal.

Even if unconsciously, everyone likes these sensations. The feeling of winning something or getting an additional advantage every time a purchase is made makes the consumer active in the cashback program.

This mechanism works so well that the number of companies offering their own cashback programs does not stop growing, although in many cases the amount returned can be used only as a discount for the next purchase.

But for many businesses, being part of a cashback ecosystem tends to be more beneficial. Such platforms, when consolidated, subject the store to an expressive base of consumers, as Diniz explains:

When a company is using a Méliuz to do this, it is benefiting from a channel that, at the end of the day, is exhibiting its products.

Bruno Diniz, leader of FDATA in Latin America

The most cautious suspect that, to work with cashback, some shopkeepers increase prices and return the “excess” to the customer. According to Diniz, this can even happen, but as the internet allows consumers to compare prices quickly, it is easy to know when a product is priced out of line with the market average.

In Méliuz, the most popular cashback platform in Brazil, there is even a contractual clause that conditions the store to offer on the platform the same prices that are practiced in direct (traditional) sales.

The advance of Méliuz

Talking about cashback in Brazil without bringing Méliuz into the conversation is an almost impossible task. The company emerged in 2011 with a very clear objective: to put on the market a reward model more interesting than the loyalty programs of the time – the founders were frustrated with the delay in collecting points and exchanging them for something.

Exploring the model of returning money to the customer, at the time, already well consolidated in markets such as the United States and the United Kingdom, was a sure choice.

Today, Méliuz reaps the rewards of having been one of the pioneer companies in cashback in Brazil. To the Tecnoblog, the company reported that its platform currently has more than 800 partner stores and closed 2020 with a base of 5.3 million active users, up 152% compared to 2019.

2020 was a busy year for e-commerce. Because of COVID-19, online shopping has become the mall or even the supermarket of countless consumers.

This movement led many people to enter cashback programs for the first time, but the pandemic situation did not respond on its own. In fact, programs of this type were already experiencing an escalation of interest in Brazil.

Just to give an example, Banco Original recently announced that, throughout 2020, it paid R $ 29 million in cashback to its account holders, who redeemed the money as credit on the card or with deposit in account.

Lucas Marques, partner and COO of Méliuz (image: disclosure / Méliuz)

Lucas Marques, partner and COO of Méliuz (image: disclosure / Méliuz)

Pudera: programs that return money are increasingly used as a benefit by banks, mainly linked to credit or debit cards.

But, in the segment, no platform had a 2020 as interesting as Méliuz: in November, the company made its debut on the stock exchange (IPO). Since then, Méliuz’s shares in B3 (identified as CASH3) have increased by more than 200%.

In conversation with Tecnoblog, Lucas Marques, partner and COO of Méliuz, revealed that the company is going to offer various financial services from 2021, such as loans, insurance, gift cards and cell phone recharge (credit).

It is not a long shot. In partnership with Banco Pan, Méliuz offers a credit card (with a cashback of up to 1.8%) that, in less than two years, registered more than 2.8 million interested parties. It is already possible to realize that the platform has the potential to explore other financial services.

In addition, the current reality of the Brazilian market – such as the emergence of Pix and the promises of open banking – and the fact that the company has more than R $ 300 million in cash thanks to the arrival of new investors opens up for higher flights.

Is it fad or permanent?

Méliuz’s plans to offer financial services follow a trend. A similar movement has been followed by Love Digital, for example. Linked to B2W companies (such as Americanas.com, Submarino and Shoptime), the platform also became popular with cashback, but was structured to offer digital accounts with different services.

This change in the business model does not imply abandoning cashback. As a main product, the modality is being repositioned as a differential of the two platforms. It would be crazy to leave it in the background: the cashback is here to stay and still has plenty of room to grow in Brazil. This is what Marques points out:

Cashback in Brazil is just in its infancy. There is still a growth avenue for us to explore. To have a notion: in the United States, the cashback offer represents 6% of the GMV [Gross Merchandise Value — indicador que mede a quantidade de transações na moeda local dentro de um período] of American online sales. Here in Brazil, that number is only 1.75%.

Lucas Marques, COO of Méliuz

When asked whether cashback has the potential to become more popular than discount coupons or loyalty programs in Brazil, the executive says yes, without hesitation (which does not mean that these programs will end):

In many surveys, such as that of Ebit Nielsen, cashback appears at the top of people’s list of most desired benefits. I believe that this is because it is more tangible and simple to use. It is a real benefit, with a different perception of value.

Lucas Marques, COO of Méliuz

For stores, the main benefit of cashback is somewhat obvious: getting the customer back and, as a bonus, attracting new consumers. It works. It is not for nothing that initiatives of this type keep coming up.

Just to give a relatively recent example of this movement, Magazine Luiza presented, in July 2020, the option “Dinheiro de Volta” which is linked to the digital wallet MagaluPay.

But it is the specialized platforms that should attract more customers, for one simple reason: they give access to a wide variety of stores. As a rule, the user only needs to install the service app, make purchases at partner stores from it and wait for cashback.

In Brazil, among the specialized platforms that rival Méliuz are Beblue, Mooba, MyCashBack and Cashback World (MyWorld) – the latter is not as strong in the country today in terms of number of customers, however, it is present in more than 50 countries.

The number of options is not expected to grow much more than that, however. The expert Bruno Diniz explains that this segment has little space for smaller programs because they do not have expressive bases of partner stores, nor of users.

In this sense, stores with their own cashback programs will only be successful if they already have a good customer base, see the example of Ame Digital.

Ame Digital application (image: Emerson Alecrim / Tecnoblog)

Ame Digital application (image: Emerson Alecrim / Tecnoblog)

Cashback is good, but be careful

In a report published this week, XP Investimentos predicts that Brazilian e-commerce will grow 32% in 2021 and, thus, also boost (even more) cashback programs.

But it is not because the winds are in favor that it is okay to jump into this universe without thinking twice. Like everything that involves money, the matter also requires care.

To begin, pay attention to the rules of each program. Note which transactions return money and under what conditions. Sometimes it is necessary to use a coupon to have the benefit. There are also campaigns that only return value if the purchase is made with a certain credit card, for example.

Before you sign up for such a program, find out how the money accumulated can be spent. The most interesting platforms allow money to be transferred to a bank account or used in various services, such as cell phone credit.

Also pay attention to the deadlines for credits and redemptions. It often takes a few days to return your purchase to your account. On some platforms, values ​​may expire after some time without movement, so be aware of this.

The most important tip: research prices before closing deal. Often, a product sold with cashback by a store can be found at a lower price in a store that does not offer the same type of benefit.

In the same sense, be careful not to get carried away by the feeling of reward that programs like this provide and make unnecessary purchases. At first, you may not realize it, but if receiving from one side makes you spend in excess on the other, the “win, win, win” relationship ceases to exist for your side.

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