Can crypto rewards win over gen‑Z consumers?

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.