How Betterment is using cash back rewards as an engagement driver

Cash back rewards can help fintechs jockey for “top-of-wallet” status

Betterment, one of the early independent robo-advisers, is using cash back rewards to advance its journey to become a “smart money manager,” combining checking, savings and investing alongside tailored advice.

The 12-year-old, New York-based company, which has $25 billion in assets under management, recently rolled out a cash back partnership with rewards platform Dosh. It’s a tie-up that will allow Betterment customers to access cash back rewards at 10,000 brands and retailers without any action on their part.

Cash back rewards help drive transaction activity on Betterment debit cards, encouraging customers to designate them as “top of wallet” payment vehicles. The company said the rewards will also offer customers additional liquidity to help with day-to-day spending and planning needs.

Betterment rolled out its checking account earlier this year, a move similar to other digital investing apps that have launched checking accounts in recent years, including Stash and Acorns. Checking accounts are important growth drivers for these platforms, as they allow clients to move money more easily within their ecosystems and grow their assets.

“Looking at the state of the world right now, people aren’t traveling, and they’re not able to use reward points for hotel stays, and the nice thing about cash is that it is always relevant, even in a moment where people are stuck at home and doing their spending online,” Katherine Kornas, vice president of growth at Betterment, told FinLedger.

Through the Betterment-Dosh partnership, customers are eligible for 2% to 10% cash back at brands and retailers, including cash back rewards solely for Betterment customers. Since clients are auto-enrolled, the cash back rewards are immediately deposited into their bank accounts. 

Dosh also operates a standalone cash back app and has integrations with nine fintech and brand partners, including Venmo, Zoro Card and Ellevest. Instead of being funded through a portion of interchange revenue, Dosh rewards are funded by merchants. Austin-based Dosh, a four-year-old startup which has raised around $100 million, counts PayPal as one of its investors. It’s compensated through a percentage of gross merchandise volume. 

“We have focused on providing the richest cashback user experience for consumers and merchants and the highest return on ad spend through increased average order value, frequency and customer acquisition through our transaction-based advertising platform,” said Dosh CEO and founder Ryan Wuerch.

While cash back rewards are common among credit card and other financial providers, some fintechs like Bumped and Stash offer fractional-share rewards for everyday purchases. Despite the allure of these types of rewards, Wuerch maintains that cash back rewards offer consumers as much flexibility as possible with redemption opportunities.

“We’ve done a tremendous amount of behavioral research, and there’s nothing stronger than actual cash, allowing consumers to do with that cash what they want to, whether it be investing in their favorite stock, or taking it and being able to buy a pair of shoes,” he said. 

Some industry analysts contend that the concreteness of cash back offerings is an advantage over points or other types of rewards.

“Consumers prefer cash back rewards to points-based rewards because it’s immediate, more tangible, and easier to calculate in their heads (“10 points is worth how many dollars?”),” wrote Ron Shevlin, research director at Cornerstone Advisers, in a Forbes piece last year.

For Betterment, cash back is one of many tools to grow the client financial pie.

“By focusing on cash, the user has the power to make another purchase or use that cash to make a saving or investing decision,” said Kornas. “On the investing side, we offer 360-degree advice on a user’s investing goal, and we can let them know when their goal is on track, and they can use that cash back they’re accruing in their checking account to help them get back on track with one of their investing goals.”

In other news, Betterment announced on Tuesday that it has named Sarah Kirshbaum Levy as its new CEO, replacing founder Jon Stein.

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