Flipkart and Amazon Discovered a Billion-Dollar Opportunity By Giving The Cashbacks To Users

Summary of this article:

• Cashback credit cards create a new opportunity for e-commerce players.
• Cashback credit cards will help to lock up new customers.
• These exclusive cards encourage existing customers to spend more on the platform.
• Exclusive cards will tackle cut-throat competition with a high retention rate from users.
• Reaches the goal of creating a new revenue stream by gaining revenue from interest.

I highly suggest reading the below writing, if you are curious and like to learn in detail.

By Looking at the Indian markets,

With the high scope of increasing year-on-year growth, the Indian e-commerce market valuation stands at $84 Billion ($63 Billion revenue).

And as expected every e-commerce player needs the max share in the estimated market.

In this attempt, E-commerce players found a way to make money on top of what their users are spending. But how?

It’s called the exclusive cashback credit card.

Yes, the one which we are seeing as Amazon pay Icici credit card and Flipkart Axis bank credit card.

To get the max share in the estimated market, eCommerce players should focus on three major categories.

1) Retention — Existing users shouldn’t leave the app

2) Resurrected — Should activate the inactive user cohorts

3) Acquisition — Should focus on the continuous acquisition of new users with offerings.

Revenue growth will be seen on the platform when these three categories strengthen and users make a transaction.

Here’s how co-branded credit cards like Flipkart axis credit cards and Amazon Icici cards are going to boost revenue by satisfying all the three categories

Users Psychology:

If users invest in something to get a premium membership or benefits, they will not go to check other free services. It is called as Sunk-cost effect in psychology terms (Read explanation by Harvard here)

If they get cashback and benefits for any purchase on Flipkart or Amazon with this exclusive credit card they feel like premium users and judge that’s the best offer. After believing that the best offer, Why would users go to other platforms?

Just like amazon’s prime member orders contribute to over 65% of amazon’s total orders. (Might say as Psychology play)

Another example: If you have a Zomato pro membership, you are not going to check Swiggy anyway.

I predict that this is the major reason Flipkart axis bank cards require you to pay the Annual membership charges of Rs 500/- while Amazon and SBI are offered for free.

As the retention of the number of users increases, the transaction volume also increases.

Revenue:

Merchants have to pay credit card companies when a customer buys from them using a credit card. Part of this money is returned (see 1% cashback).

So, when a merchant is Amazon/Flipkart itself, the partnership allows Amazon/Flipkart to not pay anything to ICICI and pay that money to the customer as a cashback.

The same cashback amount goes to the platform like Amazon pay wallet which makes users use the company’s financial services.

But what’s there for a bank to cooperate to this level?

Nowadays most banks provide credit cards (CC) to customers without even having a bank account for the same.

During this time, if some e-commerce player who is having over a billion dollars in revenue comes and says let’s partner and offer a co-branded credit card.

This opportunity gives the bank a larger base of target audience and obviously can make money from interest and late fees if the user doesn’t pay off the bill on time.

Given a large number of people aren’t financially disciplined regarding credit cards. Which bank doesn’t want to use this opportunity?

By selling this to the bank, Amazon/Flipkart takes a cut from the interest fees and late fees.

If you observe, the money is revolving around respective e-commerce internal products. Starting from using the exclusive credit card on the platform and receiving the cashback only to the platform’s wallet(amazon pay) and spending the same cashback by coming back to Amazon/Flipkart.

Cashback credit cards as a strategy might turn into a big success for Indian e-commerce giants like Flipkart and Amazon by following the data points from the retention and acquisition of users.

But many other questions(like loans offerings, healthy payback periods, and competitors) have to be looked at with a deeper lens if we are thinking with a long-term perspective as the Amazon Prime credit card(cashback card like Amazon Icici) is a big hit in the USA with over 150+ Million card holders.

Now it’s your turn, What do you think about these cashback credit cards? Do share your views in the comments 👇

If you haven’t heard, Here are the few trending cashback credit cards in the Indian market

• Flipkart Axis bank Credit card — here
• Amazon pay Icici credit card — here
• HDFC Millennia card — here
• SBI cashback credit card- here

Deep comparison and analysis between Flipkart Axis bank credit card Vs Amazon pay Icici credit card- Click here

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P.S: From my analysis of the usage and benefits for users, the SBI cashback card wins over all of them.