Currently there are two major prize-linked saving accounts, namely Yotta and PrizePool, both of whom offer debit card that give some chance of getting the purchase reimbursed.
Yotta gives 0.5% or 0.0667% or 1% of getting a purchase reimbursed (up to $5000 per purchase) on a debit card while PrizePool typically gives 0.5% of getting a purchase reimbursed (up to $2,000 per purchase). Yotta credit card on the other hand gives 1 or 2% chance of getting a purchase reimbursed (up to $5,000 per purchase). This number is So the natural question to ask is – how does this compare to standard cashback rate? In other words, how does 1% chance of getting a purchase reimbursed becomes compare to flat 1% cashback on all of your purchase?
The straight forward answer is that when “enough” transactions have been made, both methods should yield the same profit (through reimbursement or cashback). But, how many is “enough” transactions? Well, I ran the numbers and the picture below is the result when $50 purchase is made over and over again on a card with 1% chance of reimbursement. As you can see things start to settle down to 1% overall cashback when you make $50 purchase several thousands time.
If I keep making more and more $50 purchase, I will eventually settle to 1% cashback but the image below isn’t as fun to look at so I will generally skip such a zoomed out version.
Here is another example of making $5000 purchase over and over again on a card with 1% chance of reimbursement. Once again, eventually the overall cashback turns into 1% but getting there requires several thousands of $5000 purchases.
It is worth pointing out that some people will be luckier than others in the early part of the game. For example, here is another picture of making $5000 purchase over and over again, except this user isn’t as lucky as the previous one. Initially this user takes over 1000 swipes to even get to an overall 1% return.
Join Yotta using my referral code LUCKISYOURS and we’ll both get 100 tickets. Yotta is an FDIC insured savings account where you can win prizes up to $10M every week.
https://join.withyotta.com/LUCKISYOURS
Also, get 1,000 bonus ticket after spending $2,000 within 4 months of getting your Yotta debit card.
Here is a similar set for 2% chance of getting reimbursed
And is a similar set for 1/150 odd (or 0.0667%) of getting reimbursed
In some cases, it takes a lot of purchases for things to settle down. In fact, some picture above show that you need to make even more purchase to settle down to their respective flat % cashback rate.
The following figures are for 5% chance of reimbursement. See this post for detail.
If you signup for PrizePool through a referral, you will get additional 10% on ALL of your winning and so will I.
https://links.getprizepool.com/1abMCSL4Ccb or use code Y17LK
Now, instead of thinking about it from the user’s POV, think about it in terms of card issuers POV. They need a crazy number of swipes before things really start to settle down. How many swipes do they need before they are 100% guaranteed a profit? Do small fintech banks like PrizePool (or even maybe Yotta) have enough userbase to guarantee them a profit? Maybe that’s a story for a different post altogether.
Closing Thoughts
Personally I would love to see this “get some % chance of your purchase being reimbursed” concept adopted by a big bank. They have enough customers (and thus will get enough swipes) to guarantee them a profit….and a card like this from a big bank should create a massive buzz. For example, if Citi issued a card with 2% chance of getting a purchase reimbursed, I am convinced it would make a never-ending buzz in social media, with people constantly sharing their reimbursement.
