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Cashback Offerings (TradFi & Crypto Cards)
Traditional cashback incentives, heavily reliant on specific brand affiliations, and as a result limit consumers' choices. The cashback rates usually range between 0.5% to 1%, providing minimal financial benefits. For example, a 1% cashback on the UK's average monthly household spending of £2,500 (as of 2020) results in a mere £25. The limitations of traditional cashback systems stem largely from their reliance on affiliate partnerships. Here's a closer look at the main constraints:
- 1.Limited Choices: Cashback offers are often tied to specific brands. For instance, a bank might only offer cashback when you shop from a certain retailer it has an affiliate deal with. This restricts consumer choices, as the cashback is not applicable to all spending but limited to the affiliated brands.
- 2.Relevance: Not all affiliated brands or products may be relevant to all customers. For instance, a person who does not frequently travel might not benefit from cashback offers tied to airlines or hotels.
- 3.Low Incentives: The percentage of cashback offered is usually low, often around 0.5% to 1%. This rate is typically dictated by the affiliate agreement between the cashback provider and the brand.
- 4.Inflationary Pressure: In a high inflation environment, like the UK's CPI reaching 10.1% in March 2023, the purchasing power of cashback returns diminishes. With increasing costs of living, these small percentages of cashback can't offset the higher expenses.
- 5.Limited Time Offers: Often, cashback deals with affiliates are for a limited time or on specific product lines, further reducing the actual benefits to consumers.
In summary, while affiliate marketing can drive customer spending towards specific brands and products, it restricts customer choice, offers low incentives, and may not align with individual spending habits or needs. Moreover, such cashback systems fail to mitigate the impact of high inflation, reducing their overall appeal to consumers.
Given the sharp increase in the cost of living, there's a clear need for a more substantial and versatile cashback strategy.
Cryptocurrency cashback cards have become commonplace in the digital finance realm, with platforms such as Crypto.com and Binance.com leading the way.
However, these services present several key challenges, the primary one being the high entry barrier due too stringent staking requirements. As of the time this document was written, Binance required a 600 BNB stake to qualify for an 8% cashback on all purchases. Considering the current BNB price of £193.10 GBP, this necessitates a staking commitment of £115,860 GBP, an amount far beyond the reach of an average household, particularly during a cost of living crisis. Moreover, the BNB’s value has displayed substantial volatility, reaching a peak at £311.68 GBP in November 2022 and subsequently dropping to its current level of £193.10 GBP. This implies that an individual who opted for the 8% cashback card in November would now face a 37% unrealized loss.
Tuesday 11th July 2023 - Binance's crypto card offering. (in order to get 8% cashback a user must stake 600 BNB where 1 BNB = ~£193.10)
The level of unrealized loss would be difficult for the average crypto user or household to bear, and the volatility means that the value of cashback can quickly depreciate, effectively diminishing the promised 8% cashback.
Tuesday 11th July 2023 - Crypto.com crypto card offering. (in order to get 5% cashback a user must stake £300K of CRO)
It seems like currently getting a large cashback offering has many cavieats, but what if it didn't have to be that way ?