(All information in this article has been personally verified, but the links are included for further reference.)
There’s an asterisk because it involves a credit card, and you still have to run the debit card as credit or else you get a lower rate of 2.5%. The major caveat is that you’ll only earn that cashback on $16 666 per calendar year, but if you don’t spend that more than that on non-bonus categories, this can be very useful.
The key is the PayPal business debit card and the PayPal Extras MasterCard, the latter of which is issued by Synchrony Bank. You can set the credit card as a backup funding source for the debit card when your PayPal account has insufficient funds. According to the Free-quent Flyer, backup funding does indeed earn points on the credit card. Despite what he said, though, a comment by hokie36 from this post on Travel With Grant, indicates you earn 2X via this method. In my own experience, you actually earn 3X per dollar via backup funding.
Having all the points in the world is meaningless if those points are worthless, so the question is what 3X actually gets. The answer is a lot, actually. You can exchange 6000 for $50 in PayPal balance credit, and there are often deals for gift cards of 5000 points for $50, including places like eBay. If you’re willing to take the gift cards, this is a 3% back method, but 2.5% isn’t bad either. The other 1% comes from the debit card itself, where if you use it for credit transactions, you get straight cashback. If you use it for a debit transaction, you won’t earn any cashback, but you’ll still get 3X from the credit card for backup funding. Taken together, this makes the card either 3.5% if you redeem for straight cash or 4% if you redeem for gift cards.
Now here’s the bad news I mentioned before. There’s a 50 000 point limit, as confirmed by Travel With Grant. The math works out that you get the full 3.5% back on purchases up to $16 666 per year, 2X earned on the next $1 and nothing earned from there on out. The current language of the PayPal Extras MasterCard indicates that this is calculated by your account anniversary, but the above post and others indicate it’s actually based on calendar year.
Another thing to mention if you haven’t already realized it is that you have to deal with PayPal and Synchrony Bank to get this method to work, two institutions notoriously difficult to work with. Synchrony almost exclusively pulls from TransUnion for this card, and they’re not known for giving out very high credit limits. The latter issue is bottlenecked further by the fact that the debit card has a maximum daily transaction limit of $3000.
Again, though, this could actually be a viable method to replace a regular 2% card you might have, and it’s certainly better than even the Bank of America Travel Rewards Visa even with the Preferred Rewards top-tier bonus that so many bloggers have been swooning over, so long as you spend less than $16 666 in a year. It’s even better than the JCB Marukai 3% card, which is only available to some areas. This is the best known cashback method on non-bonus spend, but feel free to make any suggestions in the comments if you know of a better option.