Every rewards program issues more value than it ultimately pays out. The gap has a name in the industry, breakage, and it is forecast in advance rather than discovered afterward.
An issued reward is a liability until it is used
When a program awards points or pending cashback, it records an obligation to deliver something later. Accounting rules require that obligation to be estimated and carried on the books.
Estimating it requires a forecast of how much will actually be claimed, since carrying the full face value of every point ever issued would overstate what the program will really cost.
That forecast is the breakage rate, and it is built from the program's own history of how redemption behavior has run across different reward types and balances.
Small balances are the main source
Most unredeemed value sits in accounts holding too little to be worth claiming. A balance below a redemption threshold is stranded unless the account keeps earning.
Thresholds therefore do real economic work. A minimum payout amount converts a long tail of tiny balances into value that will very likely never leave the program.
The same is true of accounts abandoned after a single qualifying purchase, which is common with sign-up promotions that attract one-time buyers.
Expiration rules convert time into breakage
Points that lapse after a period of inactivity, and cashback that must be claimed within a window, both push unredeemed value into the program's favor on a schedule.
Several US states regulate the expiration of gift card value, and some rules reach into loyalty balances, so program terms vary in ways that follow state law rather than company preference.
Programs that avoid hard expiration often achieve a similar effect through inactivity fees, tier resets or the retirement of specific redemption options.
Redemption friction is a design variable
The number of steps between earning and receiving is not fixed by technology. Requiring a separate claim, a linked account or a manual transfer each reduces the share that completes.
Some friction is legitimate, since fraud controls and identity checks protect the program. But the same controls also reliably lower redemption, and the two effects are not separable from outside.
Programs that want higher redemption reduce steps deliberately, which is why automatic statement credits redeem far more completely than catalogs requiring a manual order.
Higher redemption is not automatically better for shoppers
A program with very low breakage has to fund nearly everything it issues, which usually means a lower earn rate for the same marketing budget.
Programs with generous headline rates and heavy friction and programs with modest rates and automatic payout can cost their operators similar amounts.
The practical difference falls on the individual. Someone who reliably redeems does better in the high-rate program, while an occasional user captures more of a simple automatic one.