Cash back ?

[PeterJ]

I have always wondered how this concept ever started and how the retailer benefits other than perceived "good will". When we are on the road I have a checking account with usually around $1000 in it and when we need cash I just stop at the local Walmart and get cash back when we get our groceries,,,, we travel in a motorhome. It looks like a no cost deal for all involved and I have a hard time believing the banks or retailers aren't profiting somehow. If it seems too good to be true,,,,,

 

[Bob L]

While the cash back option is easy for those who have the money to access, I would think that a lot of people who are buying with a credit card instead are paying the 20% interest to get those funds. Just a thought.

 

[bigwheelzip]

I'm a big fan of Cash Back cards and have used them for years.

This article is a good description of the various flavors of "Rewards" credit cards.

How cash back credit cards work - CreditCards.com

 

[Golddollar]

While the cash back option is easy for those who have the money to access, I would think that a lot of people who are buying with a credit card instead are paying the 20% interest to get those funds. Just a thought.

That's an easy trap to fall into. I use this feature on only two of my credit cards and I pay them off in full each month. I used to do collection work on unsecured debt and getting subjected to this level of interest is a tough hole to dig out of.

 

[Kanewpadle]

Cash back is a ruse to get you to spend more using their card to do so.

To understand cash back and credit cards in general you must understand interchange rates. These rates vary. These rates are paid by the merchant as well as processing fees. Merchants aren't about to lose money just because we as consumers want to use a credit card. So prices are raised to cover these fees.

Ever get gas at a station which offers a cash price and a credit price which is normally 10 cents higher per gallon? Fees is why.

So are we truly getting cash back? The only winners are the credit card companies.

A new trend with smaller businesses in to charge those fees back to customers instead of raising prices. And it's legal.

We had this discussion a short time ago. Some people get it, some don't. Spend time running a small business and you learn quickly.

 

[kwselke]

I have always wondered how this concept ever started and how the retailer benefits other than perceived "good will". When we are on the road I have a checking account with usually around $1000 in it and when we need cash I just stop at the local Walmart and get cash back when we get our groceries,,,, we travel in a motorhome. It looks like a no cost deal for all involved and I have a hard time believing the banks or retailers aren't profiting somehow. If it seems too good to be true,,,,,

You are describing debit card use. The retailer is charged an interchange fee for the transaction, that's why it is not universally offered. The retailer benefits because it brings business to his store. I use my debit cards occasionally at my grocery store for the cash back feature because their card readers only need the chip inserted instead of the whole card, thus preventing skimming of the magnetic stripe. My Kroger has a $100 cash back limit, which is fine with me. Interchange fees on credit cards are much greater than on debit cards. Using a credit card for cash back is really a cash advance, loan. Fees and interest on a cash advance can be significant.

 

[mtgianni]

I believe what the OP is asking is when it became acceptable and why to wright a check for over the amount of purchase and receive money back. I am only 64 and I don't recall the start of the practice. It allows one to shop where you know you can write a check or get money out with a debit card vs not knowing if you can do so. Just to increase customer loyalty is my opinion.

 

[kwselke]

I'm a big fan of Cash Back cards and have used them for years.

This article is a good description of the various flavors of "Rewards" credit cards.

How cash back credit cards work - CreditCards.com

I checked my rewards Visa card yesterday and found I had $129 in rewards available. I pay it off in full every month, and like that card. I believe the OP was referring to cash back on a debit card transaction.

 

[oneounceload]

And there is the Ebate business model, similar to the credit card cash back
I think some folks are talking about 2 different things, cash back at the register as in getting an extra 20-40 back versus having a credit card that gives 1-3% back every quarter on purchases you make.

 

[linde]

I too believe we are confusing two very different "cash back" transactions.

1. "Cash Back" at your local grocer or merchant has existed a long time in the form of writing a check (or charging a debit card) for more than the cost of goods purchased and receiving "cash back" for the difference.

2. "Cash Back" in the credit card world is a very different concept and has been very well described in the link provided by BigWheelZip "How Cash Back Credit Cards Work".

I understood the OP was describing version 1. since he had cash available in a checking account and presumably was using his debit card (linked to that checking account) to access the cash.

I won't argue the merits of the various credit card "cash back" programs but, as others have said, do your homework.

Russ

 

[kwselke]

I believe what the OP is asking is when it became acceptable and why to wright a check for over the amount of purchase and receive money back. I am only 64 and I don't recall the start of the practice. It allows one to shop where you know you can write a check or get money out with a debit card vs not knowing if you can do so. Just to increase customer loyalty is my opinion.

I do recall back in check writing days, some stores would allow you to write a check for more than the purchase price and give you cash back. I believe you needed a store's courtesy card and had to ask the checker first to make sure they had enough money in the till to do it. Sort of brings back memories of taking produce to someone that weighed it and wrote the price on the paper bag with a grease pencil.

 

[Kanewpadle]

I do recall back in check writing days, some stores would allow you to write a check for more than the purchase price and give you cash back. I believe you needed a store's courtesy card and had to ask the checker first to make sure they had enough money in the till to do it. Sort of brings back memories of taking produce to someone that weighed it and wrote the price on the paper bag with a grease pencil.

Seems like a long time ago.

 

[kwselke]

Seems like a long time ago.

It was a long time ago.

 

[bigwheelzip]

I too believe we are confusing two very different "cash back" transactions.

1. "Cash Back" at your local grocer or merchant has existed a long time in the form of writing a check (or charging a debit card) for more than the cost of goods purchased and receiving "cash back" for the difference.

Your right, I didn't know this "Option 1" even existed for debit cards. Makes sense for the consumer to save the ATM terminal fees.

 

[llowry61]

Another thing to consider, all merchants are not created equally. National chains that do hundreds of millions of dollars in transactions do not pay the same interchange fee that the corner independently owned gas station does. I think the "cash back" at the point of sale is a convenience to consumers. It save a trip to the bank, so if Walmart offers this and Target doesn't the consumer may decide to make their purchase at Walmart to avoid a trip to the bank or ATM to get cash. It is just a perk that may create a competitive advantage to the retailer.

 

[THE PILGRIM]

Cash back or cash rewards on credit cards only makes sense when you pay off your credit card purchases before you get charged interest.
That way, you are getting a slightly reduced purchase price.
When you carry a balance, you are paying interest.
Any cash you get back just slightly lowers the interest you are being charged.
I use credit cards all the time, carry no balance, and when I get a few $$ cash back in my account, apply it to the balance.
The YouTube Money Guru Dave Ramsey is death to Credit Cards. He steps on them like I step on roaches!
Daily he hears from folks who have massive debt eating them alive like a flesh eating virus.
That debt is usually Credit Cards, Car Loans and Student Debt.
He never fails to yell cut up those credit cards!

 

[oneounceload]

Seems like a long time ago.

Not really, I used to do it when I did the grocery shopping to get some petty cash as opposed to then also needing to go to bank or ATM. Some stores limited you to 20 or 40; one had a limit of $100 - they just wrote your DL on the check. But, back that "long ago", kids working the register could also count your change back to you without needing to look at a computer screen 6 times.

 

[kwselke]

But, back that "long ago", kids working the register could also count your change back to you without needing to look at a computer screen 6 times.

I remember the day when I could do a count back of change and shortchange most anyone. I could do it with many folks watching me. After I told the person I had short changed them. I'd take the money back and say... now watch what I'm doing. I'd do a second count back and ask how much money do you have now. I'd short them a second time, give them the extra bill, and end the lesson. I will not share the secrets, but getting $7.16 cents back is safer for the consumer than counting $12.84 from your 20 is...