New credit card pays rewards in cryptocurrency: What could go wrong?

TomoCredit is a new credit card targeting young adults. Its most notable attribute is that it pays its rewards in cryptocurrency.

The return rate is astounding: Cardholders will get $10 in crypto for every $100 they spend, according to TomoCredit CEO Kristy Kim. And when they redeem their crypto, they will get “double crypto back” (Citi® Double Cash Card pun intended, Kim told me. Citi Double Cash Back offers 1 percent cash back when you charge and 1 percent extra cash back when you pay your balance).

“You can [expect] to get 0.0021 bitcoin ($22.81 as of today) for spending $100,” Kim wrote in an email last Friday. “We know that this offer sounds too generous; we are able to offer this amazing reward package as we save money on marketing costs.”

Kim explained that unlike major issuers such as Chase and American Express, TomoCredit doesn’t have to spend big marketing dollars to acquire only users with high credit scores.

“TomoCredit doesn’t rely on credit score[s] and it helps us do things that others cannot,” she said.

It definitely sounds too good to be true, but TomoCredit appears legit. TomoCredit is a Mastercard card issued by Evolve Bank, a 94-year-old financial institution headquartered in Arkansas that is a member of the Federal Reserve System and has its deposits insured by the FDIC. Barclays, Techstars, Passport Capital, Strong Ventures and Coinbase alumni have all invested in TomoCredit.

See related: Using a credit card to buy crypto assets: Pros and cons

How it works

Kim founded TomoCredit to give young adults greater access to credit. She detailed her challenges establishing credit in the U.S. after she left her native South Korea to attend the University of California at Berkeley. In that respect, TomoCredit is similar to the Petal® Visa® Credit Card.

Both companies practice cash flow underwriting, which takes a much more detailed look at applicants’ finances than solely looking at their credit scores. With 53 million U.S. adults unable to be scored by traditional credit algorithms, according to FICO, these companies appeal to a broad market of newcomers (mostly young adults and immigrants).

Cash flow underwriting examines prospective cardholders’ bank accounts and assesses their inflows and outflows to determine whether or not they’re good credit risks. In TomoCredit’s case, consumers can also list their stock portfolios and crypto holdings as assets.

TomoCredit claims that 50,000 people have joined its waitlist. Some have already been invited to apply for the card, and other invitations are going out on a first-come, first-served basis, Kim told me.

Many waitlist members attend Kim’s alma mater as well as Stanford University, another elite Bay Area institution. TomoCredit is banking on word-of-mouth marketing and crypto plays into that.

See related: What you need to know about Libra, Facebook’s new cryptocurrency

More about the rewards

“Our generation thinks of rewards as savings. Younger people see rewards as upside,” Kim explained. “We believe using TomoCredit is the easiest way to acquire crypto without any downside. The beauty is that if Bitcoin increases, the cash value of your crypto rewards increase[s] accordingly.”

TomoCredit offers rewards in eight different cryptocurrencies, including Bitcoin, Ethereum and Stellar.

I’m seriously considering signing up, even though I’m far from their typical target. I’m in my mid-30s, my credit score is in the 800s and I’m not a big crypto believer. But that rewards ratio is incredible! Two percent cash back – like the aforementioned Citi Double Cash – is usually a good baseline. TomoCredit is offering more than 10 times that.

Kim confirmed there is not a cap on the rewards that cardholders can earn “yet.” That last word is notable. I don’t know how TomoCredit can sustain itself for long if it’s paying more than 20 percent in rewards.

TomoCredit is a 30-day charge card, so it doesn’t assess interest. It doesn’t levy any other consumer-facing fees, either (such as foreign transaction fees, late fees, annual fees and so on). Its revenue is generated entirely by interchange fees (the roughly 2 percent bounty that merchants pay every time someone uses a credit card).

Even though this whole thing feels a bit shady – anything associated with crypto feels a bit shady, in my opinion – I agree with Kim that there’s little downside for consumers. What’s the worst that could happen? Your credit card rewards don’t get paid out, or they’re not as valuable as you expected?

See related: How Zerocard appeals to rewards chasers

My experience

I submitted my email address on TomoCredit’s website last Friday. The site says, “Apply today and upon approval we’ll give you up to $50 in free crypto.”

Even though it says “apply now” next to the box where you list your email address, I confirmed with Kim that this isn’t an actual application (it’s the waitlist). She said once you add your email address, you’ll receive an email with a link to the actual application (and, I presume, the official terms and conditions).

After clicking “apply now,” a box popped up instructing me to click an icon as many times as possible within the next 15 seconds. That was odd. Each time I did so, the amount of my chosen cryptocurrency (Bitcoin) increased. I clicked like mad, but only ended up with 0.000333 Bitcoin ($3.42). Was that really the “up to $50” welcome bonus?

Four days later, I’m still waiting for the official application, so I remain in wait-and-see mode.