Also called: Merchant-funded rewards, Merchant-funded cashback, Card-linked offers
What merchant-funded loyalty is
Merchant-funded loyalty is a promotion where you pay for rewards offered to a financial institution's cardholders. The bank or card issuer presents the offer, and your business funds the incentive when a customer makes a qualifying purchase. Rewards can be cashback or bonus points.
In a common card-linked offer, a customer activates a deal in a bank's app or website, then pays with an eligible card at your business. The purchase is checked against the offer terms, and the reward is credited to the customer's statement or rewards balance. This is one model of a Loyalty Program, not a requirement for every loyalty program.
A redeemed offer is not proof of a new sale; measure whether the campaign changed customer behavior.
How a merchant-funded offer works
You set the campaign's qualifying purchase, reward and budget. For example, published campaign examples include 10% cashback capped at $15, or $10 back when a customer spends $50 or more. These are examples, not standard terms; your campaign agreement sets the rules.
After the qualifying transaction settles, the program checks it against the offer and bills the merchant for the reward. In some arrangements, an intermediary or bank also receives a performance fee. The agreement determines the fee structure and what counts as a qualifying transaction.
What it costs your business
Your direct cost includes the reward you fund and any campaign or performance fees. That is a marketing expense, separate from interchange and other merchant processing fees charged on the card purchase. There is no universal fee amount or standard statement line for these campaigns.
A discount can reduce your margin on a sale that would have happened anyway. Measure added sales, not just offer redemptions: compare a group that received the offer with a similar holdout group that did not. Continue funding campaigns that generate incremental purchases, and stop or revise those that do not.
What you can actually change
You control the offer's audience, reward, qualifying spend and budget. Set terms that protect your margin, then compare campaign results with the full cost of rewards and fees.
- Set a maximum reward and campaign budget before launch.
- Target customers or purchase behaviors you want to change, such as lapsed visits or higher order values.
- Use a holdout group to measure purchases the offer actually added.
- Reconcile campaign invoices against qualifying transactions, rewards and stated fees.
- Set a campaign cap. Choose a maximum reward and total budget that leave enough margin on qualifying purchases.
- Test incremental sales. Compare offer recipients with a similar group that did not receive the promotion.
- Audit campaign billing. Match billed rewards and program fees to the transactions that met your offer terms.
Frequently asked questions
Who pays for merchant-funded loyalty rewards?
Your business funds the reward for qualifying purchases. Some arrangements also charge a performance fee to an intermediary or bank. The campaign agreement sets the charges, and there is no universal fee schedule.
Is merchant-funded loyalty the same as a loyalty program?
Merchant-funded loyalty is one way to finance rewards within a loyalty program. You fund the incentive, while a bank or card issuer presents it to cardholders. Other loyalty programs can use different reward structures and funding sources.
How can you tell if a merchant-funded offer is working?
Compare purchases from customers who received the offer with a similar holdout group who did not. Account for rewards and program fees, then continue funding offers that produce incremental sales rather than paying for purchases that would have happened anyway.