After a period of eye-watering cashback offers, lenders are finally moving away from offering them to win new business.

The use of cashbacks concerns us as the appeal of a cashback may influence customers to make decisions based on the lure of quick cash without consideration of all factors that contribute to an analysis of whether the finance on offer is in their best interests. Rather than offering a cashback, we have been encouraging lenders to incorporate such incentives into better interest rates for all customers.

Cashbacks can also be seen as a loyalty tax on existing customers who are cross subsidising these cash incentives. We have called out the questionable loan economics of cashbacks as they have been supported by the significant competitive advantage the country’s major lenders have thanks to lower capital costs, a rating uplift on the back of the implicit government guarantee, and a strong flow of deposits. These structural advantages enjoyed by major lenders have eroded competition in the market.

Your opportunity in a cashback environment

In the current economic environment, your role is crucial in providing clarity to customers. While cashbacks may offer a short-term cash injection that appears attractive to them, it could cost them more in the long term.

On the upside, this presents a real opportunity for you to demonstrate your distinct value in your marketing campaigns and in direct communication with your existing customers. Remind them that you are legally required to act in their best interests and how you will find the option/s best suited to their individual circumstances. This reassurance will be valuable to customers who are tempted by the cash on offer and are navigating a range of products that can seem quite similar on face value, but often have fine print that you can help them decipher.

Remind them that before switching, you may be able to get a better option by negotiating with their current lender. If the lender offering the cashback also has the features and fine print that means your customer is in a better position, you are best placed to be the one who can help them make that decision.

Please note AFG does not provide tax, legal or accounting advice. Any information provided is of a general nature and/or for illustrative purposes. It does not take into account our broker’s or their customer’s objectives, financial situation or needs and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. AFG encourages our brokers and their customers to consult their own tax, legal and accounting advisors before engaging in or considering the appropriateness of any transaction