Crypto card startups are racking up losses just to buy your loyalty with big rewards

Ever-growing cashback limits, high returns on cash balances, massive discounts on some purchases: crypto-backed payment cards are offering rewards that seem nearly impossible to match.

The problem for some card providers is that the price they’re paying for growth is more than the customers they attract bring in.

Consider KAST. The stablecoin-powered financial platform, which issues cards on the Visa network, moved from near break-even into losses as it increased spending on growth, CEO Raagulan Pathy told CoinDesk in an interview.

Or Bleap, which offers up to 15% on returns on crypto holdings and 20% cashback on purchases. If all customers do is spend on its Mastercard and collect cashback, they can be unprofitable, Bleap Latvia CEO Eduards Timofejevs said in a separate interview.

The companies are betting that, eventually, those customers will trade, borrow or pay for extra services, turning the promotional spend into a lasting source of revenue. Until then, more users and higher outlays mean a bigger subsidy bill.

“You take a loss on acquiring the customer at the beginning, but then you sell them more and more features,” Pathy said.

KAST illustrates the gap. The company advertises reward rates on its Reserve account of 8% to 12%, depending on membership tier. But the assets backing the product generate just 3.5% to 4%, and KAST has to fund the difference.

Pathy said Reserve had attracted tens of millions of dollars by September, and the subsidies were costing the company a lot. He said he viewed the expense as a way to win market share.

“Previously we were nearly break even. Now we’re loss-making,” he said.

It’s an approach that requires money and time. That’s okay for KAST, which raised $80 million in March in a fundraising round led by QED Investors and Left Lane Capital. Pathy said in the interview, conducted last month, that it had four to five years of runway and investors were not pushing it to rush toward profitability.

He pointed to membership fees, business services and planned products such as tokenized stocks as ways to earn more from customers. A larger business should also secure better terms from infrastructure providers, he said.

KAST did not disclose how much it spent on subsidies, nor provide an updated Reserve balance or directly answer whether the company remained unprofitable when asked recently.

At Bleap, Timofejevs also pointed to scale and additional services, including trading, as ways to improve the economics. The company was investing in growth and aiming to serve more of its users’ financial needs, he said.

Its published terms offer 1% default cashback on eligible spending, with payment caps of 500 euros ($560) per transaction and 3,000 euros a month. Higher rates, including 20% on selected subscriptions, carry separate limits.

When the rewards change

The harder test is whether customers hang around when the rewards inevitably become less generous as the business moves from growth-only to profit-seeking.

Crypto exchange Bybit EU, which issues a prepay Mastercard, has already changed the bargain for ordinary cardholders. In a June announcement, it replaced non-VIP cashback tiers of 2%-10%, subject to monthly caps, with an uncapped 1%. The change took effect for existing cardholders on Aug. 4.

Recurring subscription rebates also became a first-month benefit capped at 50 euros across eligible services, rather than a regular benefit for larger spenders. Bybit said the simpler structure would make the card useful beyond high spenders.

Bleap’s offering has also shifted. An earlier 2% cashback gave way to the current 1% base rate and higher rewards on selected categories. Its February update removed a previous $10 cap, meaning the change was more complicated than a simple halving of every customer’s rewards.

Neither Bybit nor Bleap responded to questions on how the changes affected active user numbers, spending and customer retention.

The underlying economics explain why providers are looking beyond spending alone. European Union rules cap interchange, the fee paid to the card issuer, at 0.2% for covered consumer debit transactions.

In the U.S., the rate depends on the card and issuer. Federal Reserve data show debit transactions exempt from the federal cap averaged 1.21% of purchase value in 2024. Credit cards have different terms and can go above 2%.

There is evidence that card spending can become a habit. A spokesperson for Krak, a money app from crypto exchange Kraken that uses the Mastercard network, told CoinDesk in August that users averaged about 8.3 card payments a week. Retail and stores accounted for 59.3% of transactions.

“Krak customers aren’t just swiping more; they’re using Krak more days a week and more times per day,” the spokesperson said.

The firm said it was approaching 200,000 cardholders and wanted to become customers’ primary financial account.

“We evaluate the economics of Krak across the broader customer relationship, rather than treating the card as a standalone product,” a spokesperson for the app told CoinDesk.

The spokesperson said customers who hold assets and spend are valuable even if they do not actively trade on the crypto exchange.

Rival exchange OKX makes a similar connection. In an August blog post, Europe CEO Erald Ghoos said the company’s debit card lets users spend without first moving money from OKX into a bank account, while VIP status can unlock higher cashback and enhanced benefits.

Those arrangements give providers a reason to reward customers on purchases: keeping users’ financial activity inside their ecosystems.

The payoff depends on customers staying, and using enough profitable services, to repay the cost of winning them. If they leave when the perks shrink, the acquisition bill stays behind.

Different models

Competition between crypto card issuers is leading to innovation in the wider payments ecosystem.

Startup Cero Finance is pursuing a different rewards model. Founder Markuss Jonans told CoinDesk in an interview at the UN:BLOCK conference in Riga that its design combines yield and transaction-related revenue to fund game-like rewards, with credit and lending intended to become its main revenue source.

A planned card will let customers establish a borrowing relationship that’s built through spending, connecting accounts, and repaying credit when it’s used.

Another seemingly new model is that of crypto neobank Ether.fi. Its Cash credit card sits alongside a staking service and managed DeFi vaults, with all three connected. Customers using the card can borrow against eligible assets staked with the platform that continue to earn yield. Borrowers pay interest, and their collateral can be liquidated if necessary.

There is evidence that customers use more than the card. A March report by Alea Research found about 80% of Cash users also used Liquid, the DeFi yield product.

Ether.fi also controls the reward bill through its cashback structure. Personal card rates start at 3% and decline as monthly spending crosses thresholds that vary by membership and currency. The lower rates apply only to spending above each threshold and cashback already earned, paid in ETHFI, is unaffected

Whether funded by trading, lending or staking, rewards ultimately have to be covered by revenue. Until then, crypto card users are those winning the rate for acquisition at every swipe.