Credit card cashback
Encyclopedia
When accepting payment by credit card
, merchants typically pay a percentage of the transaction amount in commission to their bank or merchant services provider. Many credit card
issuers, particularly those in the United Kingdom
and United States
, share the commission with the card holder by giving the card holder points, air miles or a monetary amount. This last benefit, a monetary amount, is usually known as cashback, although it is often separated into two words (cash back) in the United States
. Where a card issuer operates such a cashback scheme, card holders typically receive between 0.5% and 2% of their net expenditure (purchases minus refunds) as an annual rebate, which is either credited to the credit card
account or paid to the card holder separately, for example by cheque
.
Recently, major card issuers have raised the cash-back percentage up to 5%. The 5% cash back rate usually applies only to purchases made at grocery stores, pharmacies, and gas stations for 6 months. This high rate of cash back was set to grab the attention of potential applicants for them to consider applying for the card. After 6 months, it drops from 5 percent to 2 percent and 1 percent for all other purchases. Typically the cash back rate for all other purchases is around 1%.
Rewards based credit card products like cash back are more beneficial to consumers who pay their credit card statement off every month. Rewards based products generally have higher APR
. If you don't pay your balance in full every month the extra interest you would be paying will eclipse any rewards you earned.
In the United States
, due to increased gasoline
(gas) prices, gas cash back cards or gas rebate credit cards
became very popular among the consumers. Companies provide an average of 3% APR on new gas credit cards. The main idea behind gasoline discount cards is that cardholders obtain a sure percent of the sum they consume on gasoline each month in the form of a rebate check at the end of the year. It works similarly to a cashback discount recognition card with one noteworthy exception: the gasoline discount is frequently applied each month, whereas most cashback cards ship away discount checks formerly a year. This makes the savings easier to view for most consumers.
(1,200 US dollar) credit card payment. A month later, when the credit card provider charges the card owner with the full fee, the online store is out of the picture with no liability. In effect, what the online cash back services provide are loans with a 300% annual interest rate.
On October 19, 2010, Hideki Fukuba became the first operator of such an online cash back service to be charged by the police. He was charged on tax evasion of 40 million yen in unpaid taxes.
Credit card
A credit card is a small plastic card issued to users as a system of payment. It allows its holder to buy goods and services based on the holder's promise to pay for these goods and services...
, merchants typically pay a percentage of the transaction amount in commission to their bank or merchant services provider. Many credit card
Credit card
A credit card is a small plastic card issued to users as a system of payment. It allows its holder to buy goods and services based on the holder's promise to pay for these goods and services...
issuers, particularly those in the United Kingdom
United Kingdom
The United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...
and United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
, share the commission with the card holder by giving the card holder points, air miles or a monetary amount. This last benefit, a monetary amount, is usually known as cashback, although it is often separated into two words (cash back) in the United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
. Where a card issuer operates such a cashback scheme, card holders typically receive between 0.5% and 2% of their net expenditure (purchases minus refunds) as an annual rebate, which is either credited to the credit card
Credit card
A credit card is a small plastic card issued to users as a system of payment. It allows its holder to buy goods and services based on the holder's promise to pay for these goods and services...
account or paid to the card holder separately, for example by cheque
Cheque
A cheque is a document/instrument See the negotiable cow—itself a fictional story—for discussions of cheques written on unusual surfaces. that orders a payment of money from a bank account...
.
Recently, major card issuers have raised the cash-back percentage up to 5%. The 5% cash back rate usually applies only to purchases made at grocery stores, pharmacies, and gas stations for 6 months. This high rate of cash back was set to grab the attention of potential applicants for them to consider applying for the card. After 6 months, it drops from 5 percent to 2 percent and 1 percent for all other purchases. Typically the cash back rate for all other purchases is around 1%.
Rewards based credit card products like cash back are more beneficial to consumers who pay their credit card statement off every month. Rewards based products generally have higher APR
Annual percentage rate
The term annual percentage rate , also called nominal APR, and the term effective APR, also called EAR, describe the interest rate for a whole year , rather than just a monthly fee/rate, as applied on a loan, mortgage loan, credit card, etc. It is a finance charge expressed as an annual rate...
. If you don't pay your balance in full every month the extra interest you would be paying will eclipse any rewards you earned.
In the United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
, due to increased gasoline
Gasoline
Gasoline , or petrol , is a toxic, translucent, petroleum-derived liquid that is primarily used as a fuel in internal combustion engines. It consists mostly of organic compounds obtained by the fractional distillation of petroleum, enhanced with a variety of additives. Some gasolines also contain...
(gas) prices, gas cash back cards or gas rebate credit cards
Gas rebate credit cards
In the United States, due to increased gasoline prices, gas cash back cards or gas rebate credit cards became very popular among consumers. Companies provide an average of 3% APR on new gas credit cards...
became very popular among the consumers. Companies provide an average of 3% APR on new gas credit cards. The main idea behind gasoline discount cards is that cardholders obtain a sure percent of the sum they consume on gasoline each month in the form of a rebate check at the end of the year. It works similarly to a cashback discount recognition card with one noteworthy exception: the gasoline discount is frequently applied each month, whereas most cashback cards ship away discount checks formerly a year. This makes the savings easier to view for most consumers.
Legal grey zone in Japan
In Japan, a law enabling credit card cash back came into force in 2010. However, a legal loophole in this system was quickly exploited by online shops dedicated to providing cash back as a form of easy loan with exorbitant rates. At first, the online store sells a single inexpensive item of glass marble, golf tee, or eraser with an 80,000 yen wire transfer for a 100,000 yenJapanese yen
The is the official currency of Japan. It is the third most traded currency in the foreign exchange market after the United States dollar and the euro. It is also widely used as a reserve currency after the U.S. dollar, the euro and the pound sterling...
(1,200 US dollar) credit card payment. A month later, when the credit card provider charges the card owner with the full fee, the online store is out of the picture with no liability. In effect, what the online cash back services provide are loans with a 300% annual interest rate.
On October 19, 2010, Hideki Fukuba became the first operator of such an online cash back service to be charged by the police. He was charged on tax evasion of 40 million yen in unpaid taxes.