What Does the Mastercard-Bakkt Alliance Mean for Crypto Credit Cards?

As traditional payment networks scramble to incorporate cryptocurrency into their offerings, a move by Mastercard could usher in an era when more credit card issuers offer rewards in the form of bitcoin and ether alongside cash back, points and miles.

That could give consumers a way to passively earn a cryptocurrency just by using a credit card for everyday spending.

Mastercard said in October 2021 that it partnered with a company called Bakkt, an online platform that lets consumers buy, sell, store and spend digital assets like cryptocurrency.

While the credit card market has seen some early offerings of crypto as a credit card reward, the Mastercard deal could mean a proliferation of such cards. That’s because the payment network’s vast reach is now supported by Bakkt, which would handle the behind-the-scenes crypto functions, like maintaining a digital wallet for the crypto and converting crypto into dollars for spending at retailers.

Banks that issue credit cards through Mastercard could choose to offer cryptocurrency as a reward, potentially to differentiate themselves from the many credit cards on the market.

“As brands and merchants look to appeal to younger consumers and their transaction preferences, these new offerings represent a unique opportunity to satisfy increasing demand for crypto, payment and rewards flexibility,” Nancy Gordon, executive vice president of loyalty rewards and payments at Bakkt, said in the statement.

Overall, it’s a way of bringing crypto to the credit card market and to the daily lives of consumers.

Nerdy tip: Mastercard processes card payments, but it does not issue credit cards. A card that has “Mastercard” printed on it runs on that payment network, but the actual account is with a lending bank.

Mastercard data shows people are becoming more interested in earning and spending crypto, said Raj Dhamodharan, Mastercard executive vice president of digital asset and blockchain products and partnerships, in a post on the payment network’s website in February 2021.

“The trend is unmistakable,” he said.

Bringing crypto to credit cards is a way to introduce digital currency to people who otherwise would find it baffling to research a crypto exchange and buy a digital currency via bank transfer or other funding method.

As of this writing, Mastercard and Bakkt haven’t released detailed information on how or when crypto rewards might be incorporated into mainstream Mastercards. But the implications are interesting:

• Convert rewards. Not only would it be possible to earn bitcoin as a credit card reward, for example, but consumers could potentially convert their airline miles or hotel points into a cryptocurrency. How valuable that will be depends on the conversion rates — how much bitcoin you get for an airline mile, for example.

• Spend crypto at retail. It could also mean that credit card customers could spend their crypto rewards at regular merchants that normally wouldn’t accept it. That’s typically the role of a crypto debit card. (Basically, when you swipe your card at checkout, the right amount of crypto in your digital wallet gets converted to dollars instantly, and the merchant gets paid in dollars.)

• Rewards can appreciate. When rewards are in the form of crypto, they have the potential to rise in value, something cash, airline and hotel points rarely do. Of course, crypto has the potential to fall in value, too.

• Source of paying a credit card bill. Some issuers could allow customers to pay part of their credit card bill with crypto rewards, similar to getting a statement credit by redeeming cash-back rewards.

• Crypto as retail rewards. Outside the credit card realm, the deal means retailers could offer crypto as a loyalty reward. So a merchant’s customer might earn bitcoin instead of a free coffee or $5 off their next clothing purchase.

Those implications would make traditional credit card rewards more flexible.

Hypothetically, if you have tens of thousands of airline miles but don’t fly that airline anymore, you could convert those miles into bitcoin, which you could easily spend in the real world, suddenly making those miles valuable again.

Mastercard has said it isn’t advocating everybody get into digital currencies.

“Mastercard isn’t here to recommend you start using cryptocurrencies,” Dhamodharan wrote in the blog post. “But we are here to enable customers, merchants and businesses to move digital value — traditional or crypto — however they want.

“It should be your choice, it’s your money.”