A cashback program pays members back a share of what they spend, in money or store credit. Card issuers run the best known ones. Cash back cards are now the most common general purpose credit card in the US, at 36% of accounts, up from 28% ten years earlier (CFPB). Retailers, shopping portals and offer apps run them too. Each kind is paid for by a different party, and that sets the economics.
What is a cashback program?
A cashback program, or cashback loyalty program, is a loyalty program whose reward is stated in money. A member earns a set share of each purchase, such as 1% or 5%. Card programs pay it as a statement credit or a deposit. Retailers often pay it as store credit. Members need no chart to value it. Ten dollars back is ten dollars.
Four kinds of operator run them. Card issuers pay cash back on purchases made with their cards. Retailers pay it on purchases in their own stores, often as credit for the next visit. Shopping portals pass on part of the fee a store pays them for each sale. Offer apps pay cash back on a brand's products, and the brand funds it. Bank offers tied to a card belong to the same family, covered in our entry on card-linked offers.
How does a cash back rewards program work?
Every program runs the same four steps.
- Earn. The program sets the rate. Some pay one flat rate on everything. Others pay more in set categories. Discover pays 5% at places that change each quarter, up to a quarterly cap, once the member activates. It pays 1% on all other purchases (Discover).
- Post. The reward lands when the purchase is processed, which can be after the purchase date (Discover). Citi splits its 2% into 1% when the member buys and 1% when they pay the bill (Citi).
- Reverse. A refund pulls the reward back. American Express says it can take back an offer's credit if the buyer cancels or gets a refund (Amex Offers terms).
- Pay out. On cards, cash back is usually taken as a statement credit. Points and miles more often go through rewards portals (CFPB). Portals set a floor. Rakuten pays every three months once a member has earned more than $5 (Rakuten).
Who pays for cash back?
Three parties fund cash back. The funder decides what each dollar of cash back costs, and whose books carry it.
Issuer-funded: the card pays from its fees
A card issuer pays cash back out of the fees merchants pay on each purchase. Discover's 2024 annual report shows the scale. Its discount and interchange revenue came to $1.52 billion, after $3.0 billion in rewards that include Cashback Bonus (Discover 10-K). For every dollar of that fee income Discover kept, it paid about two dollars in rewards. Our look at how bank loyalty programs work sets out the same math at Chase.
Merchant-funded: the seller pays for the sale
Here a store or brand pays because it wants the sale. Rakuten says stores pay it a commission for sending shoppers, and it shares part of that commission as cash back. Its members have earned more than $4.6 billion since 1999 (Rakuten).
Ibotta runs the same model for packaged goods brands. It bills each brand for the value of the rewards redeemed, plus a fee per redemption (Ibotta 10-K). Walmart, Dollar General, Instacart and DoorDash carry its offers on their own apps and sites. Ibotta has credited $2.7 billion in cash back to its redeemers to date (Ibotta 10-K). In bank offers, Cardlytics passed $151.7 million of its 2025 billings back to cardholders (Cardlytics 10-K).
Retailer-funded: the store pays from its margin
A retailer pays for cash back from its own margin, most often as store credit. Costco's Executive members earn 2% back on qualified purchases, generally up to $1,250 a year. They spend it in Costco's warehouses (Costco 10-K). That reward cut Costco's net sales by $3.007 billion in fiscal 2025 (Costco 10-K).
Kohl's rewards are typically dollar-off discounts on future purchases (Kohl's 10-K). Kohl's defers part of each original sale until the rewards are redeemed. Co-brand cards mix the models. Costco funds part of its Citi card rebate from a royalty Citi pays on card purchases outside Costco (Costco 10-K).
What does a cashback program cost to run?
Cash back becomes a debt to the member the moment it is earned. Discover owed its members $2.1 billion in rewards at the end of 2024 (Discover 10-K). Costco carried $2.677 billion in accrued member rewards at the end of fiscal 2025 (Costco 10-K).
Breakage, the share members never redeem, lowers the cost. It only arises where a reward can lapse or go unclaimed. Costco books its 2% reward net of the share it expects will never be used (Costco 10-K). Its Citi card rebates are issued in February and expire on December 31. Ibotta counts balances that sit unclaimed through inactivity as breakage. It does the same for accounts it closes for breaking its terms (Ibotta 10-K).
Store credit also costs less to honor than cash. For illustration, a retailer with a 40% gross margin pays 5% back as store credit. Each $100 of spend earns $5 of credit. If members redeem 80% of it, the store hands over $4 of goods at shelf price. Those goods cost it $2.40. The same 5% paid as cash to a bank account costs the full $5, and the member can spend it anywhere.
Cashback vs points: which should a program choose?
Points cards earn more in total, though cash back cards are more common. In 2024, points cards earned $23.9 billion in rewards and cash back cards earned $16.6 billion (CFPB). Across all rewards cards, members earned about 1.6% of what they spent (CFPB).
| Question | Cashback | Points |
|---|---|---|
| What the member sees | A money value, stated up front | A currency whose worth the program sets |
| How members redeem | A credit on the card, a bank deposit or store credit | Goods, trips, partner perks or cash |
| Where breakage comes from | Store credit that lapses, and cash no one claims | Points that expire or never reach a reward |
| Changing the value | A rate cut is visible to every member at once | Repricing rewards changes what earned points are worth |
| Who can fund it | Issuer fees, brands, retailers, or a mix | The program, or partners that buy points to issue |
| Best fit | Programs that win on clear, simple value | Programs that sell trips and status |
The two can overlap. Citi's Double Cash card earns its cash back as ThankYou points. Members can turn the points into a statement credit or a bank deposit (Citi). A program can also run both currencies side by side.
How GRAVTY handles cashback programs
GRAVTY is the Loyalty Juggernaut platform, and it runs 500M+ members in production. For banks and card issuers, points, cashback and tiers run on one rules engine. A bank can pay points on its credit card and cashback on debit, with one status track across the whole relationship. The loyalty team sets earn rates and the exchange between currencies in GRAVTY Visual Rules, a patented no-code rules engine. Every balance lives on the same member record.
AI-Trust flags odd earn and redemption behavior as it happens, with scoring models tuned to each program. For in-store retail, AI-Scan reads receipts to issue instant rewards and personalized offers. GRAVTY has 150+ system integrations. One of them, Fidel API, lets members link credit and debit cards and earn rewards on eligible purchases.
Frequently asked questions
Does cash back expire?
Some cash back expires and some never does. Costco's 2% Executive reward does not expire, while its Citi card rebates expire on December 31 of the year they are issued (Costco 10-K). On cards, the CFPB notes that members can lose rewards when an account closes or points expire (CFPB).
Is cashback the same as a discount?
No. A discount lowers the price at checkout, while cash back is paid after the purchase. When the reward is credit for a later visit, the retailer defers part of the first sale until the credit is used. Kohl's books its rewards that way (Kohl's 10-K).
What is a typical cashback rate?
On cards, 1.5% to 2% on everyday spend is common, with more in bonus categories. The CFPB found that 2% cash back is a common offer among large bank issuers, and many smaller credit unions offer it too (CFPB). Across all rewards cards, members earned 1.6% of what they spent.
Can a cashback program pay rewards in points?
Yes. Citi's Double Cash card earns its cash back as ThankYou points, one point per dollar spent and one per dollar paid off (Citi). Members then turn the points into a statement credit or a bank deposit.
Who keeps cash back that members never claim?
Usually the operator, which books it as breakage. Ibotta records rewards it never expects members to cash out as breakage (Ibotta 10-K). Costco takes the share it expects will go unused out of its reward cost (Costco 10-K).