The fragmented retail market means customer loyalties are more divided than ever. Crypto cashback could be a more enticing prospect than traditional rewards programmes – but there are risks involved
Fancy a side of bitcoin with your burger? In March, US burger chain Shake Shack began offering cryptocurrency rewards to customers via a digital wallet. The promotion meant any Shake Shack purchases made by Cash App users would earn 15% back in the form of bitcoin.
The rewards scheme would attract consumers who are curious but hesitant about crypto, Jay Livingston, Shake Shack’s chief marketing officer, told The Wall Street Journal.
“If we just started taking crypto right now at our kiosk, it would have very low adoption,” said Livingston. “But through someone like Cash App, who’s been promoting it, you will get some more people that want it and that also want to learn.”
Burger King also put crypto on the menu at the end of last year when it partnered with Robinhood to launch the BK Royal Perks rewards programme. For a limited time, Burger King customers could enter to win 20 bitcoins, 200 ethereum or 2 million dogecoin if they spent more than $5 (£3.80) in-store, or on the app or website.
However, it’s not only fast-food restaurants serving up crypto. While the number of UK retailers offering crypto rewards is still small, LK Bennett, Glossybox and Myvegan are among the brands boasting bitcoin cashback of up to 10% through the fintech app Mode.
What do crypto rewards offer?
Bridging the gap between cryptocurrency and traditional loyalty programmes, crypto rewards offer brands another way to connect with fickle consumers who are less attached to specific brands and more likely to shop online or via social media.
Rather than collecting a retailer’s in-house points that can only be spent in one store, the idea is that consumers earning crypto rewards will be able to spend that currency in an increasing number of stores, invest it or use it to purchase NFTs.
According to trends forecaster WGSN, crypto rewards are set to be a hot topic in 2022. In an increasingly fragmented retail landscape, they are a way for brands to differentiate themselves and show that they are current.
“Crypto is new, it’s exciting and it’s interoperable,” explains Joe McDonnell, global head of insight at WGSN. “Offering loyalty schemes in cryptocurrency is one way to quickly modernise your brand image.”
WGSN data suggests consumer interest in crypto is peaking, McDonnell says. He adds that this is especially true for Gen Z, who view themselves as being “locked out” of traditional finance.
Social media reinvents financial analysis
There’s no doubt that Gen Z spends more time online than any other generation. And social media is reinventing the way audiences in their teens and early 20s get financial analysis. On TikTok and YouTube, influencers such as TheBlockchainBoy and BitBoy Crypto rack up hundreds of thousands of video views explaining how to play the crypto markets.
CryptoWendyO runs one of the largest female-led crypto channels on YouTube, with 159,000 subscribers. “Gen Z is very interested in crypto because they’re the most tech-savvy generation,” she says, adding that distrust in public institutions such as governments and banks is also driving younger people towards cryptocurrencies. “Yes, crypto does have risks, but so does traditional finance,” she says.
Younger people might be interested in crypto, but it’s hard to find verifiable statistics on how many of them have invested. According to the Financial Conduct Authority’s Cryptoasset Consumer Research Report 2021, an estimated 2.3 million UK adults now hold crypto assets and users tend to be men aged over 35 in the “AB” social grade covering managers and professionals.
Bitcoin’s appeal for ‘everyday shoppers’
It’s no secret that the price of bitcoin is volatile. Drops of 30% to 50% are not uncommon, which can be devastating for investors. However, WGSN’s McDonnell notes that being able to earn rewards in cryptocurrency can be a way to dollar-cost average (DCA), an investment strategy that aims to reduce the impact of volatility on financial assets. Rewards also mean consumers can accumulate coins even when the market is in a downturn which, he says, is “a key source of the appeal”.
But he warns: “Retailers who are thinking about offering crypto rewards should also consider the risks that their customers could lose their coins.”
For the crypto-curious, bitcoin rewards are a way to passively earn cryptocurrencies without actually buying them. Potentially, they will appeal to everyday shoppers who want to accrue bitcoin without the individual risk of investing. But that’s not to say crypto rewards are without risk.
David Gerard is a cryptocurrency expert and author of Attack of the 50 Foot Blockchain. He says there is potential for these schemes to act as a ‘gateway drug’ into the complex and currently unregulated crypto market.
“Crypto is really hard to use,” he says. “It’s clunky and there are very few businesses that accept it as payment. So people will try to turn these crypto rewards into actual money.”
The result, he warns, will be a lot of people having a “very painful experience” with cryptocurrency.
“The success of crypto rides on the bitcoin bubble, which is the price of bitcoin being up,” he explains. “For that, you need mainstream adoption. The problem is, there isn’t massive demand for bitcoin. People are trying to sell magic beans for real money.”
Cryptocurrency risks and regulation
Many banks view cryptocurrency as high risk because of its potential to be used for money laundering and other criminal activities. HSBC, the UK’s largest bank, is among those which prohibit transfers to cryptocurrency exchanges and digital wallets.
Last year the FCA said it would ban Binance from operating in the UK, leading many banks to pre-emptively block transfers to the crypto trading platform. In the US, President Biden recently signed an executive order seeking to regulate cryptocurrencies. Any cryptocurrency, including ‘free’ reward coins, may also be considered taxable income.
Then there is the small issue of hacking, or losing ‘private keys’. Remember Stefan Thomas, who lost a bitcoin stash worth $220m (£167m) after forgetting his password? Or James Howells, who threw away an old hard drive containing his bitcoin private key, worth hundreds of millions?
Bitcoin is still regarded as bizarre internet money by a lot of consumers, and whether crypto rewards programmes will play a part in legitimising cryptocurrency remains to be seen. Even so, adoption by major brands such as Shake Shack and Burger King may be what it takes to flip perceptions.