‘Reward points create the same sense of savings without…’: Expert explains why loyalty points are replacing cashbacks

With growing consumer fatigue around instant discounts and cashbacks, businesses are reimagining rewards as a more strategic, sustainable, and scalable lever for loyalty. In an exclusive conversation with Fortune India, Amit Koshal, co-founder and CEO of Twid, explains why the reward points ecosystem is undergoing a fundamental shift.

Excerpts:

Q. How has the reward points ecosystem evolved over the years? What do users expect from rewards programmes that they didn’t a few years ago?

Reward programmes have rapidly transitioned from being peripheral add-ons to becoming central to digital commerce. Today, not just consumer brands but also B2B and rewards & recognition programmes are prioritising loyalty more than ever. With users facing countless choices across categories, loyalty has become a key differentiator. What was once confined to closed-loop systems with rare redemptions has now evolved; reward points are turning into everyday, liquid assets.

Users expect immediacy, flexibility, and seamless use: redeeming points like cash at checkout, on favourite apps, or for recurring payments. They prefer personalised, real-time value over idle or generic rewards.

This shift is fuelled by embedded technology, deeper issuer and merchant collaboration, and growing user awareness.

Q. As digital payments mature, will reward points become a widely accepted alternative mode of payment on par with traditional currencies? What key developments would be needed for this? Or what infrastructure or ecosystem-level changes are required to treat reward points as a true alternative to currency in everyday transactions?

A. As digital payments mature, reward points are poised to evolve into a parallel currency, functioning much like digital cash. For this transformation to take shape, ease of access and everyday usability will be critical. Loyalty programmes must go beyond being marketing tools—they need to drive real business outcomes. That means issuers and merchants must treat reward points not as a cost centre, but as a lever to boost key business KPIs.

To truly position reward points as a mainstream payment method, a few ecosystem-level shifts are essential:

1. Interoperability: Points issued by banks, fintechs, and retailers must be usable across platforms and ecosystems.

2. Frictionless merchant integration: Seamless acceptance across both online and offline touchpoints will ensure smooth consumer adoption.

3. Standardisation: A common framework for point valuation, redemption, and security is needed to ensure trust, transparency, and consistency.

With these enablers in place, reward points can become a trusted, everyday payment method—widely accepted, broadly rolled out, and fully embedded in consumer spending behaviour.

Q. What critical gaps remain unaddressed in this space?

A. For reward points to operate as a fungible currency, the supporting ecosystem must match the strength of traditional payment networks while adding more flexibility. However, several gaps persist:

● Fragmentation: Consumers juggle multiple loyalty accounts with no unified visibility or control.

● Inconsistent redemption: Many platforms offer limited or outdated options, reducing user engagement. Many times, the reward points expire without intimation and get devalued, leading to user dissatisfaction.

● Lack of real-time personalisation: Users still receive generic offers that don’t reflect their behaviour or preferences.

● Limited business impact: Point issuance and redemption are not always linked to measurable outcomes, leading to underutilisation.

● Poor interoperability: The lack of cross-sector integration prevents users from maximising value across daily services.

Addressing these challenges is key to making rewards a seamless part of everyday spending.

Q. Which sectors in India see the highest transactions and redemptions of reward points? How do these sectors differ in using rewards for customer engagement and sales?

A. In India, travel, e-commerce, telecom, and retail see the highest reward point activity.

● Travel: Airlines and OTAs use loyalty for long-term engagement, offering aspirational rewards like upgrades.

● E-commerce and quick commerce: Rewards are tied to checkout savings, boosting frequency and cart value.

● Telecom: Points are linked to recharges and subscriptions to reduce churn.

● Retail and grocery: Focus is on routine savings, making rewards a habit-forming tool.

Each sector adapts rewards based on transaction frequency, margins, and the consumer journey.

Q. Cashbacks and instant discounts have been the default incentive model. What's driving the shift toward reward-point-based payments instead?

A. In the digital payments space, the shift from cashbacks to reward points is driven by the need for sustainable growth and smarter incentives. Cashbacks, while offering instant gratification, strain margins and have become commoditised. Cashback and instant discounts are attractive in the short term, but they don’t create ongoing engagement or brand stickiness. Customers take the benefit and move on—there’s little reason to return or build loyalty. Reward points, on the other hand, provide deferred value, creating the same sense of savings without the immediate cost hit. Their flexibility allows brands to personalise rewards, set expiries, and create tiers, making them more strategic and cost-efficient.

With real-time redemption now possible at checkout, points deliver the same gratification as discounts, while enabling better control for businesses. For fintechs and merchants, reward points are emerging as a more sustainable and scalable alternative to drive payments and retention.

Q. From a unit economics perspective, how do reward point systems help businesses manage margins better than traditional cashbacks?

A. Reward point systems offer fintechs, issuers, and merchants greater control over incentive economics. Unlike cashbacks that trigger an immediate outflow, reward points allow deferred value delivery, often linked to future transactions or redemption timelines, helping preserve unit margins while sustaining engagement. Breakage plays a big role in loyalty programmes where unused points, once expired, become pure profit, unlike cashback from a business economics perspective.

They also enable dynamic value management. With adjustable redemption thresholds, expiry terms, and point-to-currency ratios, businesses can tailor incentives by user segment and transaction behaviour. In contrast, cashbacks are fixed once triggered, offering minimal flexibility in cost management or optimisation.