The GENIUS Act is spurring boom in crypto rewards

• Key insights: Cryptocurrency and stablecoin rewards are gaining popularity following the passage of the GENIUS Act.
• What's at stake: As traditional, premium credit card rewards are being revamped by American Express and JPMorganChase, other payments companies are hoping to offer a different value proposition to borrowers through digital assets. 
• Forward look: Fold, a Bitcoin financial services company, wants to integrate bitcoin into consumers' entire financial lives, Chairman, CEO and Founder Will Reeves told American Banker. 

A more crypto-friendly government is driving wider  uses for digital assets, and that includes incentive marketing. 

Fold, a publicly traded Bitcoin financial services company founded in 2019, late last month said it was partnering with Visa and Stripe to start offering a credit card that pays up to 3.5% in Bitcoin rewards on purchases. Cardholders earn an unlimited 2% back instantly, plus up to 1.5% back when they pay off purchases using their Fold checking account, according to Fold. Stripe will issue the card, and Visa will serve as the network. 

The card had about 75,000 consumers on its waitlist at launch. 

"The Stripe announcement signals a level of adoption and open embrace of Bitcoin in a way that I would say wasn't around back in 2019," Fold Chairman, CEO and Founder Will Reeves told American Banker. 

Credit cards that pay rewards in cryptocurrencies are nothing new, but they are gaining popularity. PayPal-owned Venmo first began allowing consumers to automatically purchase crypto with the cash back they received on purchases in 2021, and cryptocurrency exchange Gemini launched a co-branded Mastercard to provide crypto rewards linked to spend on its credit card in 2022. American Express and Coinbase also teamed up in June of this year to launch a co-branded credit card with crypto rewards. 

More credit cards offering rewards paid out in cryptocurrency are also on the horizon, a trend that is gaining more momentum as some of the countries largest credit card issuers such as American Express and JPMorganChase revamp their premium, flagship credit card rewards offerings. 

The rewards are paid out like any other credit card with a cash-back reward, Reeves said. The customer swipes their card, Visa recognizes the transaction on the Visa network and remits interchange to Fold, which Fold then uses to purchase Bitcoin from the open market or from its roughly $160 billion of Bitcoin reserves on its balance sheet before turning over the Bitcoin to the customer. 

"The customer is now fully exposed to the volatility of Bitcoin," Reeves said. Afterward, customers can convert the Bitcoin back to dollars or withdraw it to another Bitcoin wallet.

In the Fold

For Fold, offering Bitcoin as a reward on credit card spend is about more than just swapping the reward, it changes the underlying business model of rewards programs, Reeves said. 

"Its a phase shift," Reeves said. "At the bedrock of rewards programs are two concepts: Breakage [unredeemed rewards] and the idea that those rewards can be devalued over time. That cannot happen when you're delivering someone Bitcoin. We are unable to inflate Bitcoin. We don't have any way to grab Bitcoin." 

Bitcoin rewards also align Fold's incentives with its customers. 

"Our job is to make that customer as wealthy as possible, have as much purchasing power as possible, because that will flow to us," Reeves said. "Traditional reward programs are exactly the opposite: How can I get [customers] a very high reward immediately that they perceive as very valuable and then devalue it over time?" 

New stablecoins applications in rewards payouts also have the potential to change traditional credit card reward models, said Lin Dai, CEO and founder of Superlogic, a blockchain-powered loyalty and commerce platform that has investments ffrom Amex Ventures, the venture capital arm of American Express. Dai is also the co-founder of Spree Finance, a blockchain-native commerce and credit infrastructure layer.

Normally, loyalty points paid out to customers are considered liabilities on a company's balance sheet. For example, if 100 points are redeemable for $1 worth of service or product on that company's platform, then the company providing the reward points would need to keep that value as a liability on their balance sheet. There's also margin funded rewards, where the issuer of the reward point negotiates a deal with different merchants to allow consumers to spend those points for the merchants' goods or services. 

As rewards points get more popular – especially rewards points linked to airlines – companies need to find new distribution channels to let customers spend their rewards points when the demand for their product or service being redeemed exceeds their supply. 

Stablecoins are changing this dichotomy, Dai said, which is why he co-founded Spree Finance, a blockchain powered loyalty protocol that uses an on-chain, fully-backed stablepoints system that's backed by U.S.-dollar denominated stablecoins. Generally, 100 points will equal one stablecoin. 

"Those stablecoins are now basically locked in an on-chain contract that's collateralized by those actual, real dollars," Dai said. "That opens up a whole variety of opportunities for banks and program owners to actually now generate yield or deploy those USD stablecoins into a blockchain financial system. And the consumer knows their points are not going to lose value because there's a dollar backing every 100 points." 

Rewards collateralized to stablecoins also makes it easier for consumers to spend their points at other merchants because the points are actually pegged to real currency, Dai said. 

Spree Finance can use any stablecoin, but currently uses Circles USDC. 

Stablecoins for marketing payouts

Stablecoins are also being used to pay out consumers for participating in marketing campaign efforts. EarnOS, a startup that provides a decentralized marketing platform, is using stablecoins to pay consumers for participating in marketing campaigns offered by companies, which it calls "missions." 

"What we're trying to do is build a matchmaking service that makes sure that the right brands find the right people that are valuable to that brand, and then that brand rewards that person for being valuable," EarnOS founder Phil George told American Banker. "We're just facilitating the assignment, verification and reward of those tasks, and we facilitate the distribution channel so that we can help brands reach new audiences, tell new stories and have new engagements." 

Customers complete tasks, such as following a company on social media. EarnOS verifies that the task was completed, then pays out the reward to the customer on a virtual card that the customer can use to spend anywhere. 

EarnOS currently uses Circle's stablecoin, but is in the process of spinning up its own stablecoin issued by Bridge, a stablecoin platform Stripe acquired in February. 

"Now, companies like EarnOS can issue their own stable coin backed by Stripe and it's denominated as our own stablecoin," George said. "That means that we can actually offer a savings product to the users where they earn 5% on their money through the Bridge product suite natively in the app."