Stablecoin-Centric Loyalty For Retailers
The Problem: Legacy Payments and Loyalty for Retailers
Merchants and retailers are beholden to legacy systems that are parasitic to their core business. Nowhere is this more evident than in payments and loyalty.
Payments
When it comes to payments, retailers grant a myriad of intermediaries exorbitant privilege in extracting value from their customers. To move one dollar from a customer to a merchant, that dollar passes through banks, issuers, networks, processors, acquirers, gateways and fraud stacks - each of which clips a fee, leading to the interchange fees of up to 3-4% that is borne entirely by the retailer.
Interchange fees and other payment infrastructure costs are often one of the single biggest expense lines incurred by a retail business. In the United States alone, merchants paid more than $100 billion in card processing fees in 2023.
Legacy payments infrastructure represents a costly and antiquated toll road that retailers have virtually no control of, despite their success in delivering the actual customer relationships and distribution. This situation is ripe for disruption, yet previous attempts to level the playing field have failed.
Loyalty
When it comes to loyalty programs, retailers have mostly lost the battle to banks and card networks. The exorbitant privilege of legacy payment infrastructure doesn’t stop at high costs as described above - it has managed to also envelope customer rewards, from concert tickets to airline seats to luxury goods. This is a multi-billion industry controlled by large credit card companies.
Of course, retailers can and do operate their own loyalty programs. For example, Starbucks Rewards has become a prime example of a successful hybrid payments-loyalty program. However, this is the exception that proves the rule: Starbucks’ model entails extreme customer frequency which lends itself well to a stored-value wallet model.
But in categories like sports, travel, fashion, electronics and luxury goods, customers may visit only a handful of times per year and, as such, they are most likely to use their credit card rewards programs which involve high costs and membership dues. Average retailers cannot expect a customer to leave a high cash balance stranded in non-redeemable form at a merchant they infrequently visit. As a result, most retailer loyalty programs - even those at very large and successful companies - are ineffective and lack scale. Customers do not value retailers' reward points and don’t view them as money. Case in point - it is estimated that over $100 billion of reward points go unredeemed annually.
The ultimate irony is that retailers have in many cases ceded control of a valuable loyalty-based program despite being the ones that actually originate and furnish the customer relationships. Creating standalone customer loyalty programs is difficult and expensive with banks and card providers having such a head-start. As a result, the retailer’s ability to access meaningful customer data is significantly impaired. As with payments, this situation is ripe for disruption, yet previous attempts have been unsuccessful.
The Solution: Stablecoin-Centric Payments and Loyalty
While modern techniques have been introduced to improve payments and loyalty - that is, new point of sale terminals, digital wallets, closed loop reward systems, BNPL, card linked offers and embedded finance products - they have all only marginally improved many parts of the user experience. Despite these efforts, retailers are still burdened with very high fees for processing transactions. Modern fintechs have not changed the fundamental equation of how money moves across payment networks.
Stablecoins introduce a new paradigm for how we use and move money globally. They are programmable dollars that can be sent natively across the internet for a fraction of a cent. Under a novel regulatory framework recently enacted in the US, stablecoins represent a compliant, fiat backed, fully collateralized and fully yield-generating payment instrument issued under clear rules, with transparent U.S. Treasury Bill reserves and bankruptcy remote structures.
For the retailer, stablecoins offer a generational opportunity to disrupt payments infrastructure by bypassing legacy systems, thereby allowing retailers to regain control of the payment relationship with the customer. For example, a stablecoin balance held by a customer in the retailer’s wallet becomes a modern, programmable vehicle that behaves more like a checking account than a traditional closed-loop loyalty program.
Stablecoins fundamentally change how money moves
What are the benefits of stablecoins?
Stablecoins are extremely inexpensive. Transfers can be executed at a fraction of traditional acceptance costs, especially at scale and with new regulatory guidelines giving merchants the leverage to accept novel forms of payments at the point of sale.
Stablecoins settle instantly. On high throughput blockchain networks, payments settle within a second. The increased velocity of money allows merchants to receive funds immediately, unlike in legacy systems.
Stablecoins are programmable. Business logic can be written directly into the movement of money. Rewards, fees, splits and routing can all be expressed via software instead of batch files and manual reconciliations that can be costly and cumbersome to implement.
Stablecoins are interoperable. A dollar stablecoin is internet native, meaning it is the same object in New York and Tokyo. It does not rely on complex, time consuming and costly cross border rules to route to the correct destination. Value does not need to be “reissued” via gatekeeping intermediaries across local banking systems. Stablecoins offer enormous benefits for cross border commerce, vendor payments and FX optimization, to name just a few.
Stablecoins bring global liquidity. Stablecoins did not exist over a decade ago; today, there are over $300 billion of U.S. dollar backed stablecoins outstanding. In the next 5-10 years, stablecoins are likely to grow into the trillions and be used globally. Minting, redemption and trading liquidity will become as easy as using an app on one’s smartphone.
Stablecoins are real time and transparent. Every movement of value can be observed and analyzed at the wallet and transaction level (with appropriate privacy controls), instead of relying on aggregated statements and delayed reports across multiple card issuers and banking providers.
Stablecoins are ideal for agentic commerce. AI agents can easily hold, read and route stablecoins in a wallet. This is impossible within legacy payments, where finance is siloed within the local banking system. Stablecoins can unleash innovation around loyalty in ways that are not feasible for proprietary and closed points databases.
The wallet is the unifying product feature
With legacy financial institutions, the question of custody is trivial. The bank holds money on your behalf; the bank controls it. You access your money via their interface and money transmission happens over private networks.
Stablecoins offer a new paradigm. As digital assets, their transmission is done on open and public ledgers (with privacy layered in). However, most crucially, a retailer has the freedom to build a digital wallet that provides custody and functionality for a retailer-branded stablecoin.
Such wallet-centered design puts the merchant into a direct, ongoing relationship with the customer and disintermediates the legacy financial apparatus. Instead of being forced to implement an extractive payments integration from a bank or credit card provider, the merchant can opt out by building its own program, tailor it to its customer base, leverage the data and provide targeted rewards that are delivered against a cash balance instead of abstract points.
Instead of having a card number that occasionally appears at checkout, the customer has a live wallet address delivered from the merchant’s app that can receive top ups, hold value, spend, interact and eventually interface with software agents that act on the customer’s behalf. This customer-wallet relationship unlocks a myriad of benefits which incentivizes customer engagement and loyalty.
Stablecoin-Centric Loyalty: Trojan Horse for Modern Payments
Stablecoins, on their own, are a disruptive technology that make payments more efficient and bring a huge number of ancillary benefits, as described above. However, the meaningful integration of stablecoins into corporate and retail settings is still a work-in-progress. First, the legacy financial system has been reluctant to embrace stablecoins (for obvious reasons). Second, in the same way that email did not become a ubiquitous communications vehicle until Hotmail and Gmail made it easy to access for the masses, stablecoins will not transform global payments without a similar catalyst for mass adoption.
Enter a stablecoin-centric loyalty product.
By leveraging the flexibility and efficiency of stablecoins within a loyalty framework, merchants can bring stablecoin liquidity to a pre-existing customer base of millions (with spending of trillions). A stablecoin-centric loyalty program can unlock powerful new incentives for retailers to leverage and engage their customers, growing revenues and reducing costs. A stable, redeemable, merchant branded balance that lives in a branded wallet lets retailers turn loyalty incentives into a flywheel.
Example: Merchant Dollar Stablecoin and Loyalty Program
Scenario: The customer funds the wallet
Illustrative customer testimonial: “I downloaded the Retailer app and it was easy for me to fund my wallet via my bank account. I sent $500 and I got a free $150 that I used to buy bluetooth speakers! I had $200 left over and I decided to fund another $800 to get into the premium tier that gives me additional credit on purchases over the next few months as I plan to buy some headphones and a new laptop. If I need the money back, I know I can just withdraw it easily - it’s a regulated stablecoin after all. I like knowing that my money is giving me rewards and it’s not tied up at all if I need it.”
Scenario: The merchant saves costs, earns yield, boosts sales
Illustrative merchant testimonial: “We had a promotional campaign where we offered 5% rewards for balances held for over a month. The response was crazy! We had $50 million of customer deposits in our branded wallet within the first 24 hours, some customers as far away as Korea and Australia. We ended up extending the rewards campaign and over the past few months, where we earned $750,000 in yield. We used about $500,000 of that in rewards that boosted sales significantly on higher margin products. And there were no interchange fees!”
Scenario: The merchant sees increased customer data
Illustrative merchant testimonial: “Our previous loyalty product was points-based and we never hit the usage targets we projected. It was expensive to maintain. Customers didn’t know what the points were worth. Once we incorporated the stablecoin wallet, we immediately began engaging with customers via dollar denominated rewards. We saw all the data on a real time basis, saw what was working and what wasn’t. We were able to target a holiday promotion towards a product that we never would have otherwise without the data from the wallet app.”
Scenario: The merchant dollar becomes globally liquid
Illustrative customer testimonial: “I had $5,000 of USDC on Aave earning 5% APY. In mid-November I traded it on Uniswap for $5,000 Merchant$ as I wanted to buy a bunch of things in the new year. The Retailer gives great holiday rewards and I ended up earning an additional $500 in rewards over those months. I also got invited to a special event organized by the Retailer in January because I had a premium tier balance. I got to meet my favorite podcaster at that event. I’m keeping that balance in Merchant$ for the next year, as I want to go to more of these special events.”
Scenario: The customer leverages agentic commerce
Illustrative customer testimonial: “I wanted a designer suitcase and I didn’t want to pay more than $800. I put this intent into my AI agent and it scoured the internet. The lowest price it could get was $900, but it found a Retailer app wallet promotion that gave me $100 off if we paid via Merchant$. I already had some USDC in my MetaMask wallet and the agent automatically swapped for Merchant$ and purchased via the Retailer app. It’s getting delivered tomorrow!”
Conclusion
Legacy systems around payments and loyalty represent an enormous opportunity for merchants and retailers. Not only are they extremely costly from a fee perspective, but they ultimately control a valuable customer relationship that rightly belongs to the retailer.
Stablecoins are a new paradigm in payments, allowing for lower costs and a myriad of accompanying benefits owing to the disintermediation of legacy financial systems. Stablecoins offer a generational opportunity for retailers to regain control of the payment relationship with the customer. By leveraging stablecoins within a loyalty framework, a pre-existing customer base of millions can immediately onboard onto a new program that unlocks powerful incentives around customer engagement, revenue growth and cost reduction.
Over time, as more merchants adopt this model, we believe the ecosystem will start to look less like a set of isolated, costly and ineffective loyalty programs and more like a network of interoperable merchant dollars riding on secure and efficient blockchain networks. Customers will benefit from a familiar experience across brands, and merchants will benefit from shared payments infrastructure they control that not only reduces cost but delivers growth.
