PayPal introduces a cash back MasterCard (PYPL, MA)

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In partnership with Synchrony Financial, PayPal has introduced its new cash back MasterCard, which will give cardholders 2% cash back on purchases. The card, which will only be available to PayPal customers, won't have an annual fee, a cash back limit, or restrictions on how cash can be spent.

And for added convenience, once potential cardholders are approved, they'll have access to their cards on PayPal immediately, even before the physical card arrives. Giving consumers access to a rewards card will help push PayPal's strategy of increasing in-store and online payments via its products. 

Adding a new rewards element to a product that has already proved to be successful for PayPal could be a formula for significant growth. 

• PayPal cardholders not only spend more than noncardholders, but they are also more engaged. PayPal customers who adopt one of the company's credit cards spend 35% more than noncardholders, according to TechCrunch. Additionally, PayPal cardholders log on to the company's mobile app and website three times more than they did before getting the card.
• Adding a rewards element, like 2% cash back, is likely to attract customers. Almost 60% of consumers rank rewards as a major reason for adopting a credit card, according to TSYS’ annual US Consumer Payment Study.

This offering is just one of many new incentives and partnerships PayPal has introduced to give consumers more opportunities to make in-store and online payments. PayPal has been extremely aggressive in advancing its payment offerings for its users over the last 18 months —  the firm has entered into 24 partnerships. These partnerships include major deals with Visa, MasterCard, Samsung Pay, Android Pay, and Apple, which all have the same goal of giving PayPal users more opportunities to use their accounts to pay for goods and services online and in-store. It's also important to note that all of these advancements may be a precursor to PayPal introducing its own stand-alone, NFC-based in-store payment app.

Credit card rewards have become so popular in the US that issuers capture headlines just by launching a new rewards card. And with consumers now caring more about the type of rewards being offered than any other card feature, competition to offer the most lucrative and attractive rewards has intensified dramatically. 

But it’s also important to note that offering such high-valued rewards comes at a price — Chase’s Sapphire Reserve card ended up reducing the bank’s profits by $200 million to $300 million in Q4 2016, according to Bloomberg. And as costs continue to rise, issuers will have to adjust to this new landscape by leveraging technology and partnerships to keep consumers engaged without sacrificing profits.

Ayoub Aouad, research analyst for BI Intelligence, Business Insider's premium research service, has compiled a detailed credit card rewards explainer that:

• Identifies the costs associated with offering rewards for issuers and how they have increased over time.
• Details why credit card issuers continue offering high-valued rewards.
• Analyzes how the industry has evolved since 2011
• Explores how credit card issuers will advance in order to continue reaping the benefits of offering rewards without assuming increased costs. 

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