Rewards - Irrelevant & Unnecessary?
Discussing the irrelevancy of the digital payments reward system and how PhonePe aims to solve it by its new feature addition.
Welcome back! For today’s ‘Understanding Nuances’, we have a very relevant and exciting topic to discuss. All of us use various digital payment applications (Google Pay, Paytm, PhonePe, others) and are exposed to their reward system. This article talks about this reward system, how it has evolved over time, and whether it is even relevant or not. We also discuss a new feature added by PhonePe and how it can differentiate it and place it above its competitors, so do stick to the end.
Only a couple of years ago, UPI was launched in India (2016 to be exact). We then saw the launch and rise of Tez (now Google Pay), and over time other applications (Paytm and PhonePe in the forefront) have also established themselves in this ecosystem. As per NPCI, in December 2021 alone, there were 4.56 billion UPI transactions with a total worth of Rs 8.27 trillion. That’s some crazy figures!
In the initial years, these players offered huge cashback when we made transactions via them. The cashback was more frequent and also held more value. Over time they decreased. And it was only fair on the part of the companies. The users and the frequency of the transactions were growing by leaps and bounds, and having monetary cashback on a majority of the transactions was just not sustainable.
And we then saw the switch, from cashback to rewards - discount coupons, membership deals, gift cards, and whatnot. They may sound attractive in the first go, but a long term user can vouch for how most of these remained unused. And what’s the reason for it? Sheer irrelevancy. These rewards are not specific to the user, repetitive, and based on very specific use cases. For example, I have five exactly the same Zomato coupons (on Paytm) that are only valid on the first Zomato order. Do you see what the problem is? Also, a user who never orders medicine online has PharmEasy coupons.
Companies have also found various ways to represent rewards and incentivise customers. Paytm provides cashback points that can be used at a few selected places (discounts on some e-commerce platforms, dining, food delivery, others). Not all are relevant and useful, although they are still better than just providing random coupons and vouchers to users.
Google Pay banks on the user’s anticipation of reward where they have devised a path with milestones. You move one step by making a payment above Rs 100, and every milestone has some exciting rewards (not necessary).
PhonePe’s new feature addition (refer to the screenshot below) is on similar lines. The feature aims to solve the issue of the irrelevance of coupons and vouchers. Now when you view the rewards section on the PhonePe app, it asks you to select three or more categories (among a total of ten) and then it aims to provide you with rewards from those selected categories. These preferences can be updated anytime ahead as well.
The feature in the first go tackles the issue of irrelevancy, but there are more layers to it. Taking from the example above, I might be a Zomato user selecting ‘Food’ as a category, but those exactly the same five coupons will still be irrelevant. The usefulness of this feature will be tested in the long run. And how competitors react to the same is also a thing to look forward to.
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