Editor’s note, May 2026: This article was first published in October 2022. It has been updated to reflect current merchant funded loyalty program models, including affiliate, card-linked and gift card-linked offers.
A merchant funded loyalty program involves a third-party partner covering the cost of member benefits. This usually happens when the loyalty program promotes that partner to members. The partner then funds rewards when members transact.
Some programs have built their strategy around affiliate revenue and cashback. Many major coalition programs, especially frequent flyer programs, also use affiliate earn within their wider offer. Three common merchant funded loyalty program models are considered here: affiliate, card-linked and gift card-linked.
1. Affiliate merchant funded program:
Affiliate connects advertiser and promoter businesses at scale. The promoter publicises the advertiser to its marketing database. Members click through to the advertiser’s online store and transact. The advertiser pays the promoter a percentage of the member’s spend. This is known as affiliate marketing revenue. The promoter then rewards the member with cashback or points funded by that revenue.
Why affiliate works for loyalty program operators
The percentage return provided in the form of affiliate marketing revenue can range from 1 per cent up to 20 per cent and even more, making it an attractive extension for points programs where the average earn rate may only be a 1 or 2 per cent return. Advertisers often run short-term promotional campaigns which increase the percentage return, making it increasingly attractive.
Affiliate program challenges
Program operators face two common challenges with this affiliate marketing framework. The first is payment delay. Many advertisers align affiliate payment with the official refund period. This can delay payment for up to 90 days. The second is member effort. Members must follow the right process to earn cashback or points. This commonly requires members to sign in, find the relevant brand, and click through before transacting.
ShopBack affiliate loyalty program example
| ShopBack[1]: is a strong example of an affiliate merchant funded program. ShopBack partners with thousands of retailers that pay commission when members shop through the ShopBack platform. ShopBack then shares part of this commission with the member as cashback. Members usually start by signing into ShopBack, finding the retailer and clicking through to the retailer’s online store. If they complete an eligible purchase, ShopBack tracks the transaction and adds cashback to the member’s account. Once the cashback is confirmed, members can withdraw it to a bank account or PayPal. This gives the member a tangible reward without the retailer needing to operate its own loyalty program. ShopBack also reduces member friction through its browser extension. The extension prompts members to activate cashback when they visit participating retailers online. This helps members avoid missing cashback opportunities. It also reduces the need to remember the full click-through process before shopping. The browser extension approach has helped affiliate programs increase member engagement. It brings the earning reminder to the member at the point of purchase. However, this model can create mixed feedback from advertisers. Some retailers may believe they would have won the sale without paying commission. This is especially relevant when a member is already on the retailer’s website. If the extension then prompts cashback activation, the retailer may see the commission as unnecessary cost. That tension is one of the ongoing challenges of affiliate-funded loyalty program models. The model can deliver value for members and program operators, but retailers need clear evidence of incremental sales. |
2. Card-linked merchant funded program
This approach involves the linking of a credit/debit card or bank account to a member account.
How card-linked loyalty rewards work
For card-linking, when the member uses the registered card to transact with a participating merchant, the transaction data is routed from Mastercard, Visa or Amex to the program operator, and an agreed percentage of the total transaction is retained (similar to affiliate marketing revenue). The program operator can use the retained revenue to reward the member with points, cashback or credits etc.
How bank account-linked rewards work
For bank account-linking, any transaction made via the member’s bank account is redirected to the program operator, allowing them to identify transactions made with participating retailers, and apply the relevant reward. The participating merchant can then be invoiced for the cost of the reward at some time in the future.
This approach provides some advantages over affiliate marketing. The benefit can often be provided to the member much faster than affiliate marketing rewards, which may take up to 90 days. The member can spend online, but more importantly in-store, expanding the flexibility of shopping options. The member does not need to follow specific processes to earn, but simply pays with the registered card or bank account.
PokitPal card-linked loyalty program example
| PokitPal[2]: is an Australian card-linked offers, rewards and cashback platform. Members can access offers from local and global brands by linking an eligible card and transacting with participating merchants. This creates a lower-friction member experience than many affiliate models. Members do not need to remember to click through before shopping. They can transact with their registered card and receive the relevant reward when the offer terms are met. The model is also useful for merchants. It allows participating brands to fund rewards, encourage spend and measure customer engagement through card-linked offer activity. PokitPal also offers white-label reward solutions. This allows banks, publishers and other partners to add merchant funded offers into their own customer experiences. This makes PokitPal a useful Australian example of a card-linked merchant funded rewards model. |
3. Gift card-linked merchant funded program
Gift cards are typically sold to loyalty programs (and other retailers such as supermarkets) at a discount to the face value amount. Loyalty programs have developed app solutions which allow members to register a credit or debit card and purchase a variable value gift card for a specific brand in real-time. The gift card barcode displays in the app and can be scanned at the checkout, completing the sale. The gift card discount is used to reward the member with points or miles. Discounts can range from 1 per cent up to 15 per cent for different brands.
MileagePlus X gift card-linked loyalty program example
| United MileagePlus: offers MileagePlus X,[3] an app that allows members to earn miles across everyday retail purchases. Members can browse offers, buy eGift cards and see earn rates before they shop. Miles then post directly to their MileagePlus account. The gift card-linked model works differently from a standard affiliate model. In the back end, the system can support the purchase of a digital gift card for a participating retailer. The member then uses that gift card to complete the purchase. MileagePlus can buy gift cards at a discount. They can use the discount to cover the cost of the miles they award to the member, making the rewards partially or fully funded by the gift card margin. The model is clever in two ways. Firstly, the discounts provided on gift cards can be generous enough to give the member a meaningful miles bonus. This gives members another reason to engage with the program between flights. Secondly, gift card affiliate suppliers have already negotiated many merchant relationships. This makes it easier for MileagePlus to build out its coalition without negotiating every individual agreement directly. MileagePlus X remains a useful example of a gift card-linked loyalty program model. It shows how a frequent flyer program can extend earn opportunities into everyday retail. |
These models show how merchant funded rewards can reduce program costs while giving members more ways to earn.
2026 update: merchant funded rewards continue to evolve
Merchant funded rewards remain highly relevant in 2026. Affiliate models continue to support cashback and points earn across online retail. Card-linked offers continue to reduce friction for members. Gift card-linked models still help loyalty program operators fund rewards through merchant discounts.
The strongest models usually do one thing well. They make earning easy for members while giving merchants a measurable reason to fund the reward.
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[1] Shopback, https://www.shopback.com.au/how-we-work, accessed 15 May 2026.
[2] PokitPal, https://www.pokitpal.com/ accessed 15 May 2026.
[3] United, https://www.united.com/ual/en/us/fly/mileageplus/earn-miles/mileageplus-x.html, accessed 15 May 2026.
