How Will Crypto Disrupt Credit Cards – And Rewards?

A currency serves two purposes – a medium of exchange and a store of value. So far crypto isn’t good for either, it’s tough to use (you first have to convert it to another currency and that’s costly) and good stores of value don’t fluctuate wildly in price.

However crypto is no longer a flash in the pan either, many very smart people are working developing businesses, tools, and use cases, and prices have dropped – and recovered – for the most popular currencies. The price of crypto doesn’t seem to behave like a classic bubble.

It’s worth separating blockchain from crypto which is a particular use case for blockchain technology. Blockchain promotes trust and verification and that’s incredibly useful (e.g. self-executing contracts). Think about the last time you rented a car. You walked into the lot, they gave you keys, you drive away with something worth $30,000 or more and they simply trust you’ll bring it back.

Trust is crucial to economic activity, and blockchain will matter a lot especially in lower-trust societies but also to allow unknown players to act with trust which expands markets and makes them more contestable. That’s great.

Credit card companies and payment networks are dipping their toes in crypto but financial services is heavily regulated and Treasury Secretary Janet Yellen hates crypto. So we’re not going to see wholesale adoption of crypto in traditional finance. Crypto can undercut traditional interchange pricing perhaps but it won’t be as cheap as it seems today once we layer on regulatory compliance like Know Your Customer sorts of rules that government will impose.

Crypto is a competitor to traditional payment networks, and the existence of low cost alternantives will likely compete down price. Lower interchange rates mean less rewards over time. That’s because it won’t make sense to spend as much to incentivize transactions through the network.

But crypto isn’t going to replace credit cards because credit cards actually bundle a variety of services that are useful to consumers.

  • payment clearing
  • financing (APR)
  • protections – from security of transactions and guaranteeing that you’re only charged for things you buy, and that merchants get paid – plus add-on services like price protection, extended warranty, etc

Crypto and other financial innovations can disaggregate these, but that isn’t the same as replacing them. In other words, new technologies are going to matter but they aren’t going to eat this highly-regulated world.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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  1. Jorge, BIPOC still don’t have the same privileges and quality of life as White people so no, the future is not here.

  2. Gary: You are correct that crypto isn’t usable as a currency — currency needs to have stability of value (think Zimbabwean dollars, Weimar Republic marks or Delta Skypesos). You are also correct that it needs portability (this is why we don’t have a great deal of barter transactions, and salt was once a medium of exchange). But a currency also needs to have generalized acceptance – I’m looking at my $10 Confederate note from 1862 and some small notes such as 1000 Italian lira that aren’t worth standing in line in Rome to convert to Euros.
    The U.S. used to use a system of private bank notes as paper currency in the 1800s, and didn’t learn its lesson until 1929 despite “panics” in 1854, 1857, 1873 (which lasted almost 20 years), and 1897. Those panics were caused by defaults by the private banknote issuers, and resulting devaluation of their notes.
    Crypto is, at best, a security without the benefit of an S-1. No one knows what lies behind the various crypto currencies, or what accounts for their intrinsic value (if any). It truly is – at this point – tulip bulbs without the pretty flowers.
    As Elon Musk said about Dogecoin on SNL, “It’s a hustle.”

  3. In a world where crypto competes more directly with credit cards, why assume that competition drives interchange rates (and thus rewards) down, rather than driving rewards higher to entice participation (especially if crypto payment platforms don’t have added expenses of various protections, etc.)? Not disagreeing, just curious.

  4. In the near future, an airline or alliance will start to issue miles on the blockchain. Also they will sell airline tickets as NFT that are sellable and tradable (ie you can buy a ticket and then if you don’t need it you can sell it, like a concert ticket). It will probably be some small airline like RyanAir, EasyJet, or WizzAir with not much to lose in terms of reputation. But just like unbundling and basic economy, it will become so profitable that the major carriers will have to adopt it.

    Remember airline tickets are the only item I can think of that the price actually goes up as the product gets closer to expiration. That means it isn’t an efficient market and crypto will eat its lunch.

  5. @WokeFlyer

    BIPOC have produced absolutely nothing in history but rap and problems. BIPOC commit the highest level of unprovoked violence everywhere they are in the world and turn everything they touch sour. I couldn’t go a flying fish about quality of life for BIPOC. BIPOC have it easy. They haven’t even invented the wheel yet they have houses, cars, boats, iPhones, hear, electricity, and internet.

  6. If the US or EU or someother country decides it will issue a cryptocurrency then we will have a cryptocurrency.
    If you and your buddies or who ever has a crypto-‘coin’ then it can be converted to a real currency then spent.

  7. @Jackson Watersom

    Anyone who knows even a little bit of history knows everything you just wrote is BS.

    What have you produced that gives you any special right to enjoy the cumulative progress of humanity that others should not?

    I really hope you wrote all that as a poor attempt to troll, if it is what you really think then I feel sorry for your parents for having failed in their duties.

  8. @Wokeflyer #BLM,

    Nor will they. Braindead Idioc People Of California dont deserve privileges or qualiity of life upgrades. They deserve what they vote for.

  9. As the CEO of a cryptocurrency startup, there is a bunch of inaccurate information in this article. But stating “crypto isn’t going to replace credit cards” is just so shortsighted it’s really sad to read. You don’t know that. You’re assuming that but many times nobody can see the innovation actually coming. There’s a day when nobody thought anyone would have challenged the dominance of long distance phone companies, or a multi-billion dollar company like Blockbuster Video, but here we are.

  10. @Mike

    You are exactly correct. People look at this space very narrow minded and only for what it is today. They can’t see much down the road. The same as many who said, like Steve Ballmer from Microsoft, “There’s no chance that the iPhone is going to get any significant market share. No chance.” That was in 2007. I don’t think he was correct!

    Fortunately there are some amazing projects out there building for tomorrow. As well as forward thinking people who see the future. As an example, Deloitte would not have made an alliance with Ava Labs/Avalanche (AVAX) if they didn’t see the amazing benefits in this tech. I can guarantee other huge companies will be looking at Deloitte as a template for replication, whether in Avalanche or many of the other fantastic projects current or future that will emerge.

    (on a side note would be interested in what your startup will focus on?)

  11. Gary – how do you see KYC being enforced in the crypto area? KYC can be applied through banks to anything that involves dollars (i.e. exchanges), but as cryptocurrencies become more ubiquitous and people can buy/sell/get paid in crypto, there will be less need for exchanging back and forth to dollars. In crypto-to-crypto transactions, there are no banks or exchanges to co-opt with KYC requirements, by design. That leaves regulation of merchants as the only option – do you think merchants will be required to KYC any customer who pays with crypto?

  12. @Gary – yes, governments will certainly try. I guess my point is that the choke points you mention (exchanges, centralized wallets) are all optional, and those who aren’t exchanging to/from dollars can easily avoid them. Governments would have to move to the point of sale (merchants), and monitoring ~10 million U.S. merchants for KYC compliance is a much more difficult task than monitoring ~10 thousand financial institutions.

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