Venmo introduced a new rewards program called "Venmo Stash" on Monday (November 10), offering cashback to users who make purchases at preferred brands or use Venmo-linked products through its payment app.

While cashback incentives are common with credit cards, Venmo's program (with rewards up to 5%) will be deposited directly into its Mastercard debit card. Venmo is a subsidiary of PayPal (ticker: PYPL).

Venmo explained that the initiative aims to encourage continued use of its services by attracting more funds into its ecosystem.

The program also reflects a new approach brands are taking to reach younger consumers—many of whom prefer debit cards over credit cards.

A 2024 study cited by eMarketer found that only 39% of Gen Z users frequently use credit cards, compared to 51% of older generations. Another survey conducted earlier this year by Morning Consult for Cash App Afterpay revealed that 63% of Gen Z users favor debit cards over other payment methods.

As a result, payment providers and retailers are catering to younger consumers in two ways: by offering more debit card rewards and by providing alternative payment options at checkout, such as "buy now, pay later" (BNPL) services like Affirm (ticker: AFRM), PayPal Pay Later, and Klarna (ticker: KLAR).

For Venmo, the program's logic is simple: the more users engage with Venmo products, the greater the rewards they can earn. The company believes this will deepen user integration into its ecosystem.

Additionally, the program competes with cashback incentives from rivals like Cash App, which offers exclusive perks for its debit card users.

Regarding reward tiers: initially, users spending with their Venmo Mastercard debit card using their Venmo balance will receive 1% cashback. Enabling "Auto-Reload" (which automatically tops up the account when funds are low) increases cashback to 2%. Users who receive monthly "Direct Deposits" into Venmo can earn up to 5% cashback.

Unlike traditional cashback programs that categorize rewards by spending type (e.g., groceries, gas, dining), Venmo's program allows users to choose from curated "brand bundles." For example, they can select a bundle featuring McDonald’s, TikTok Shop, Uber, and Uber Eats, or another including Amazon, DoorDash, Domino’s, and Walgreens.

The PayPal-owned company stated that the Venmo Stash program will expand further next year, allowing users to earn rewards when paying at Venmo’s nationwide partner merchants.