Credit card rewards programmes have grown in popularity and now provide users with a variety of advantages and privileges. These programmes, which range from cashback to travel rewards, provide attractive advantages that might increase your spending power and add value. However, navigating the credit card rewards landscape sometimes resembles solving a puzzle. In this blog article, we'll examine the nuances of credit card rewards, expose their most important components, and offer tips for maximizing them.
I think it's really important for us to Analyse who is bearing those rewords or cashbacks. Is it me who is bearing the rewords? Is it the shopkeeper who is bearing the rewards, or is it the brand or someone else who is bearing the rewards? In this blog, we are going to discuss and decode everything about credit card rewards. Well, first of all, let's try to understand the different types of rewards that these credit card companies offer.
Explain the basic principles of credit card rewards programmes at first. Talk about the various rewards, such as cashback, travel rewards, points, and statement credits. Describe how these rewards are earned, such as through spending categories or introductory offers. Stress the significance of reading and comprehending the terms and conditions of each reward programme, including any limitations or restrictions.
There are two major types of rewards: the very first is cashback, and the second is like a point-based reward system. The very first one is cashback, so let's take a simple study scenario: here we have Mr. A, and he is wanting to go shopping in this shop, so what would mystery do? MR. A goes shopping. Let's shop for 10,000 rupees, okay, and for these 10,000 rupees, he is of course going to pay. Assume that he is paying by credit card now because if this person pays by credit card exactly, you will get cash back. Now how much cash back and all that will depend from credit card to credit card, this is a system for cashback.
Let's go on to the second one, which is like a point-based reward system, so let's continue with the same example of this person, Mr. spending via a credit card, but instead of getting cash back, the person gets rewards. Now with these rewards, there'll be again some ratio that every 100 rupees spent will give you X number of rewards. For every 100 rupees spent, you'll get, let's say, two rewards and two points. Okay, now what happens if, in this spend, he got 500 reward points? Now there is another math involved here: one point is equal to how many rupees. Assume one point is one rupee, so these 500 points are equivalent to 500 rupees. Now assume Mr. A says, I want to redeem these points. He can again go and shop, and now he's got his shopping bag, but he's not paying anything. What happened to the points? Points were redeemed, and that's how he was able to fund the shopping through the points that he had earned on the earlier purchases, so I hope you have understood both of these ways of getting rewards through credit card companies, but is there any other way to get rewarded? That's what we are going to check out in the next section of the blog.
Now, finally, let's go back to the million-dollar question as to who pays for the reward points or for the cashbacks on my credit card. So for that, let's understand this with the help of four case studies.
Imagine there is a beautiful restaurant and a person is enjoying his meal. Now what has happened is that this person has just enjoyed his meal, and with the help of his credit card, he has paid the bill of his restaurant, and he is very happy because he has gotten cash back on his credit card. Now he's thinking, Who paid for the cashback? He got a 10% cashback, but who actually paid for it? Was it the restaurant that paid for it? Was it the credit card company that paid for it? Who was it? Now for that, you have to know certain additional facts. Let's say that this was a newly opened restaurant, and they wanted more and more people to know about it, and that was the reason why they tied up with this credit card company and said that if people use your credit card, we are willing to offer an additional discount and additional cash back. So think logically about who will be bearing the cost of this cashback. Will it be the restaurant that is trying to acquire new customers, or will it be the credit card company? It's a no-brainer. Ideally, it has to be the restaurant, so if you ask me, my logic is that 100% of the reward will be born by the restaurant. If they have a good bargaining power, it can be something like 90% restaurant and a 10 percent cost, which will be borne by the credit card company. I hope the first point is clear, and now please improve your imagination skills, okay?
I'm going for the second case study as well. Moving ahead with case study number two, please now improve your analytical skills, okay? Now the person has come to the Samsung Mobile store. Now assume that this shopkeeper tells you that if you buy this mobile and if you pay with your credit card, just as an example, an ICICI Bank credit card, or I say it's a credit card basically, then you will get a 10% additional cash back, and again, the word cashback brings a big smile to this person's face. Okay, now what happens is that he immediately makes the payment with the credit card, he buys the mobile, and he gets that cash back instantly. Big question: who paid for the cashback? Was it the credit card company that paid for the cashback rewards? Was it Samsung, a brand, who paid for the cashback, or was it the dealer who paid for the cashback rewards? Now again, there is no specific answer, but it will depend on case to case. Let us understand this. I mean, if you have seen this realistically, Samsung generally has tie-ups with different credit card companies. For example, this month they may run an offer with the ICICI credit card, next month they may run an offer with the HDFC credit card, or next Monday with whatever other credit card company. So here we may say that the credit card company will say, Okay, this is what we will charge. We will not be able to, you know, pay anything for the cashbacks, so it will be Samsung as a brand who will be paying for the rewards and who will ensure that they get more and more new customers, or we call such a cost a customer acquisition cost. So who will bear this cost? It will generally be Samsung as a brand who will bear this cost, and it will neither be the dealer nor the customer.
I hope second case study is also clear with that let's move ahead with the third case study and the third case studies about Dmart and you might have observed that Dmart generally doesn't offer any cashback throughout the year basically on credit cards or whatever but typically what I have observed please send me your observations as well in the comment box but what I have observed is during Diwali time or some festive offers they will run offers stating that if you use XYZ credit card then you will get a five percent cashback or ten percent cash back or whatever now why would this strategy be used by Dmart possibility is that they know that a lot of customers keep on coming to their store but when it is Diwali there is a possibility that a lot of people already have a lot of time in hand they might go and search for other offers during this time frame there would be some other online Giants as well who might give some additional rewards and discounts as well so they want to retain their customer so it's not more about customer acquisition it's more about customer retention ,so again if assume Dmart ties up with ICICI credit card or HDFC credit card or with any other credit card company then who will bear the cost ideally logically again it will be Dmart who will be bearing this cost and this will be not a cost of customer acquisition but ideally it should be a cost of customer retention. Whatever case studies we talk about till now, in all three case studies, who was benefiting? They were the customers.
Moving ahead with the final case study, which is about a case where there may be a long-term relationship or a strategic partnership between two big brands, why is this case study different? Because if you have analysed the first three case studies, in the restaurant case, the restaurant was a newly opened one, and that is why they didn't have the pricing power or the bargaining power per se. In the second and third cases, in the case of Samsung and Dmart, they too were big brands, but in both these cases, we created it, wherein Samsung was more interested in customer acquisition in our example, and in our example, Dmart was more about customer retention. Now other than these three case scenarios, could there be a fourth one? Like I mentioned, could there be a strategic partnership between two big brands? It could be something like this credit card where two giants, one being Amazon and one being ICICI, have partnered together and offered this credit card.
Now what happens is that they give five percent cashback or something for every dollar spent on Amazon. Watch a big disclaimer: this blog is not brought to you by Amazon or any credit card like the HDFC credit card, or as I said, these are all examples that I'm taking. Okay, so with this credit card, whenever, let's say, a person goes and shops through it, who will pay for the rewards or cash back? Will it be ICICI? Will it be Amazon? Or will it be the person who will be paying knowingly or unknowingly for these reward points or for these cashbacks? Now, to be honest again, it'll be very difficult for me to tell you who will bear the actual cost for this because, in the case of such a strategic partnership, some long-term Agreements are signed off, and these Agreements are obviously not available in the public domain, so we will have to have a word with some top-level management guys from either of these two Brands so that we get to know about this, but of course, as I mentioned, this is going to be private data. There could be a sharing; it could be like, let us say, the reward or let us say whatever is a cashback amount might be shared, like 50-50, ICICI will bear it fifty percent Amazon 60-40, 70-30, whatever as per their own bargaining power, but in such cases, one point.
I can definitely say that in this case, as in the earlier three cases, there was one entity that was totally benefiting from this, and that was the customer himself, but could there be a possibility wherein we also directly or indirectly bear such costs? That is what we are going to understand in the last section of the blog article. Well, the final point that an individual may also indirectly bear for the Cash Back Rewards or Points is that that can be because of either AMC charges, that is, the annual maintenance charges, or it could be through interest for late payment, or possibility number three could be a penalty for non-payment as well. Now let's go through all these points one by one. What are AMC charges? many credit card companies will say that yes we are ready to give you a credit card but this XYZ rupees will be your annual maintenance fee okay but then credit card companies also say that if you spend minimum let us say 50,000 rupees or one 1,00,000 rupees in the entire year amount will be fixed by the credit card company then this AMC will be waived off if you spend the minimum amount okay so this may be avoided, number two there could be people who always pay only the minimum amount due on the credit card if that is done then an interest is levied by the credit card company to the person and this is how this person I mean any person would keep on funding the credit card company and through these funds only credit card companies can give you rewards right so this is not a good practice to do so.
So always remember to pay your full amount of credit card due, and if you do that, the interest penalty or interest payment will also be gone. The last one is about the penalty for non-payment, or it could be even a penalty for late payment, and that can also happen. So what happens if you do that? If you have to pay for the penalty, this will be income for the credit card company, and that is how they can use these funds to give you or some other people cashbacks and reward points. So if you want to avoid this, don't forget to pay your credit can also be of great help. Credit can also be of great help.
Provide techniques to help readers maximize their credit card benefits. Talk about strategies including concentrating on high-reward categories, utilizing initial deals, utilizing bonus categories, and stacking rewards with additional discounts or promotions. Encourage readers to keep track of their spending, plan how they will use their rewards, and steer clear of pointless purchases.
I hope you find a lot of value in this blog. Although credit card rewards services provide a wealth of interesting benefits and advantages, understanding and making the most of these benefits may be difficult. You may maximize credit card rewards by understanding the fundamentals of rewards programmes, selecting the best one for your needs, using efficient tactics to maximize benefits, and carefully handling your credit. Remember that credit card rewards should improve your financial situation, so use them intelligently, keep up with scheme enhancements, and modify your approach as necessary. You can make the most of credit card rewards and benefit from the extra value they offer to your financial journey with careful preparation and a little bit of mystery-solving.
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