Cashback is the newest trend to rock the entire Indian e-commerce game. Big players, emerging players, almost everybody in the e-commerce niche is embracing cashback culture, compelled by thick audience demand, surging market competition and latest funding rounds. It remains to be seen if the new fad stays strong in the long run or fizzes out in an industry that has been enveloped with deep discounting since its inception.

Cashback: is it really new?

The answer is no, it’s not. Cashback as a concept doesn’t involve direct saving for the customers, instead the customers now save money for their next purchase on the same site. It is like saving for that next grocery store visit, or saving for the next day’s cab fare — situations that won’t go anywhere, and will always require payment from the wallet.

Flashback some years ago: Banks and credit card agents were chasing us to sign-up for credit cards and get guaranteed cashbacks on purchase of gas, hotel reservations, insurance, and what not. The situation now isn’t any different, just that the legacy of those credit card-based loyalty programmes is being carried forward by the Indian e-commerce industry.

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More recently, cab aggregators like Uber, TaxiForSure and Ola used cashback to hook in new sign-ups through their apps and found some great success. Over the last year, as the market and customer demand matured, many e-commerce players embraced cashback as a new means to gain initial traction, spearhead their new customer acquisition model and do more business!

Cashback and Indian e-commerce players

According to Forrester’s India Online Retail Forecast, 2013 To 2018, India’s online retail spending is expected to grow at a compound annual growth rate (CAGR) of more than 50 per cent over the next five years, as more Indian consumers start purchasing online. This is why discounts and cashbacks are the best bet for Indian e-commerce players towards market capitalisation and revenue.

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At present, the cashback campaign is being championed by top Indian mobile wallet firms such as Paytm, MobiKwik and PayU, besides food and deals aggregator such as TinyOwl and CashKaro. The idea is simple — get new customers, compel them to come back and make more money.

Paytm, the mobile wallet-turned e-commerce company, is the longest serving player and supporter of cashback in the business. On the back of its aggressive cashback campaigns, Paytm closed in 15-20 per cent more revenue through mobile recharges. Imagine the numbers in an e-commerce retail setup where it will reap not just customers and revenue, but much more than both through returning customers.

In an Economic Times report, Shankar Nath, Senior Vice President, One97 Communications, the parent company of Paytm was quoted as saying, “Cashback programmes are run to incentivise new customer acquisition or to increase the frequency of transaction among existing customers.”

Cashback and Indian e-commerce customers

Right now, cashback has struck the right chord with customers and appears to be a win-win situation for both sellers and Indian audience. Nobody knows what will happen to the Indian e-commerce situation when discounts fizz out. Although many prophecies have been made and the day is coming; when it does come — we won’t like it, for sure.

The real reason why cashbacks are so hot in India is the fact that they could accomplish something that discounts never could. Consider a situation: Four e-commerce players are offering 20, 30, 40 and 50 per cent discounts on televisions. Who would you pick? The one with the most discount, obviously.

But what if you add cashback to the equation? The customer would then be compelled to think beyond discounts and plan for the next purchase. Game over for discounts.

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Indian e-commerce giants are bleeding money right now.  Be it through discounts or cashbacks, the agenda is customer acquisition, branding and market capitalisation. Forrester expects the online buyer population in India to grow to 128 million by 2018, while India’s online retail spending is expected to touch US$16 billion by 2018, an eight-fold increase from 2013. We are in for a treat for at least three more years.

So, discounts or cashbacks. Enjoy it while it lasts!

The views expressed here are of the author, and e27 may not necessarily subscribe to them. e27 invites members from Asia’s tech industry and startup community to share their honest opinions and expert knowledge with our readers. If you are interested to share your point of view, please send us an email to writers[at]e27[dot]co

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