Finance:Mobile phone cashback

Mobile phone cashback, in relation to mobile (or cell) phone contracts, is a form of rebate marketing.

Structure and mechanism

Cashback offers combine a contracted monthly payment along with cashback amounts and dates at some point in the future. For example, the contract might cost £40 per month for a minimum period of 12 months, with £240 cashback. The total contract price is reduced from £480 (12 x £40) to £240, once the cashback is taken into account. The retailer may advertise the price after cashback to drive sales.

Some cashback deals are paid in one lump sum, but most are paid out in a preset schedule over the life of the contract. For example, £300 cashback in a 12-month contract may be paid as £100 in month 4, £100 in month 7 and £100 in month 11.

Aims and origin

Cashback deals allow retailers to attract customers to high-value contracts. The contract rate is paid directly to the network and is usually a standard tariff with many other customers paying the same rate. The cashback is received not from the network itself, but from the retailer, who uses the cashback as a sales device. The retailer pays the cashback from the commission it receives from the network for referring a new customer. Many cashback offers are based on a retailers' efforts to meet network targets, which will result in a bonus payment from the network alongside the usual commission.

In addition, cashback offers may help to combat fraud on high value contracts. Where up-front inducements are used to incentivise sales, such as instant cashback or free merchandise, criminals may use fraud to gain access to the incentives. When the customer defaults on the contract, the network will recall the commission paid to the retailer and the retailer is out-of-pocket. Cashback deals paid over time allow the retailer to provide an incentive on condition that the consumer sticks to the terms of the contract, thereby securing the retailers' commission.