Top 5 questions to ask corporate card vendors about cash back.
Corporate card cash back might seem simple enough — a business earns money every time an employee pays by corporate card. Recently, however, we’ve noticed a lot of confusion and competing claims regarding cash back and rewards points programs.
The principles of caveat emptor certainly apply here: Card companies often make their incentives, in both cash back and rewards points, sound more attractive than they actually are by purposely obfuscating the details and making it hard to compare programs. To ensure you get the best rewards for your company, a good starting point is to review the realities of interchange economics.
The money for cash back or rewards points is generated by interchange fees, which are funds paid by merchants to card providers as part of the costs of a transaction. The card provider can then choose to pass along some of those funds to the cardholder as cash back or points. It’s a great model for incentivizing card purchases, but there is a cap to the interchange fees a card company can charge — and that is regulated by law. Interchange fees typically top out at around 2.5% of every transaction amount. Any cash back offered beyond that point means the card provider loses money — and that’s certainly not the goal of any card provider.
The cap on interchange rates creates problems for card providers. How can they give the appearance of providing better cash back or rewards than their competitors without losing money? The answer is often by making it hard to decipher the details. Fortunately, some due diligence can get to the bottom of the true value of a card provider’s cash back or rewards points. Here are five questions to ask:
1. Are the cash back or points available for all types of spend? And do the same rates apply for every type?
Some programs only offer rewards or cash back for specific kinds of purchases. Common sense dictates that you’ll earn more if the program applies to all spend.
Others give different rates for different categories. Of course, the marketing of card incentives typically focuses on the largest reward. Let’s use an example of a program that offers 8X the points for all rideshare transactions. That sounds great! But, by emphasizing the multiplier, they can avoid mentioning that the base rate is low — and the base rate applies to the majority of spend taking place. If the points are redeemed at one cent per point, the actual dollar value ends up being lower than many simple rates for cash back.
Because it’s in the card issuer’s best interest to hide the true value behind complicated points systems, it becomes difficult to compare rewards points to cash back. Our market research shows rewards points end up being a maximum of 1% in real benefit
2. Is there a time or dollar limit on the rates?
Some programs offer a high rate of cash back for an initial period of time, then lower it. Others will apply one rate for a certain amount of spend (say, the first $50,000), then change the rates. It’s all designed to attract customers with a loss leader that, over the long run, may not offer customers much value. The Brex 30 charge card, for example, offers an attractive “welcome offer” on its rewards points program, but it’s important to compare those rewards to the lifelong value of other programs.
3. How do I redeem rewards points or receive cash back?
Our customers tell us that they’ve often found it difficult to redeem rewards points. Sometimes the process is complicated; other times they just don’t use the relevant vendors or purchase the right products, and sometimes they simply forget! (They’re not alone: About one third of cardholders never redeem their points.)
It’s also worth asking when cash back is paid out, as some programs only distribute cash back once a year.
4. Are there any other conditions around usage?
Some cards, such as Divvy, offer higher rewards points with more frequent payments. That provides an incentive to stay on top of payments, but it may not fit with your own cash flow management.
5. Can I earn cash back when I pay bills?
A consolidated platform gives AP teams the opportunity to monetize bill payments by earning cash back each time a bill is paid. Airbase even prompts bill payers by letting them know if a vendor accepts virtual cards, so they don’t miss any opportunities to earn cash back by selecting payment by card instead of ACH or check.
Airbase offers a one platform solution to manage all non-payroll spend. It provides oversight and control over spending with real-time reporting and automatic syncing directly to your general ledger. Control all payments – physical cards, virtual cards, ACH, and checks – from one place. Close faster. Empower employees. Control spend.
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