How does Crypto.com make money?

Summary of how Crypto.com makes money

I often get asked how Crypto.com can make a profit by providing prepaid cards with cashback rates of up to 5% without any fees. Are we dealing with a Ponzi or pyramid scheme? Let’s answer 3 valid questions about the business model of Crypto.com.

Valid questions

It’s not just the cashbacks that raise questions. Crypto.com spends billions of dollars on marketing and has to pay for its daily operations, incl. salaries of more than 4,000 employees.

1. High cashbacks on zero-fee cards

Crypto.com is known for its cashback cards. These prepaid cards can be used for everyday purchases, both online and in-store. Cashback cards provide users with a cashback for every transaction.

Crypto.com has 50 million users. Assuming an average cashback of at least $20 per month per user, this equals a monthly expense for the company of more than $1B.

While higher-tier cards require users to hold CRO, Crypto.com’s cashback cards come without any fees:

No initial card delivery fee
No monthly or annual fees
No transaction fees on card transactions

How can Crypto.com afford to pay out billions of dollars in cashbacks without asking any fees to its users?

2. Aggressive marketing

You might know Crypto.com from their sponsorships of Formula 1, UFC, PSG, or the Montreal Canadiens. Crypto.com also spent $700 million to buy the naming rights of the Lakers’ Staples Center in Los Angeles for 20 years.

Or perhaps you got to know Crypto.com through their first major commercial, starring Matt Damon. More than 100 million was spent to air this commercial in 20+ countries. Crypto.com also aired during the 2022 Super Bowl, starring Lebron James.

The company will also sponsor the FIFA World Cup in Qatar. This sponsorship is expected to contribute to Crypto.com reaching 100 million users by the end of 2022.

How does Crypto.com pay for its sponsorships, celebrity endorsements and commercials?

3. Operational costs

Crypto.com has over 4,000 employees. Currently, the firm is recruiting almost 1,000 people in 35 locations.

Crypto.com is a private company, but it’s not hard to realize that their annual running costs are likely in the hundreds of millions of dollars.

How does Crypto.com pay for its daily operations?

Answers

To understand how Crypto.com can pay for all of this, let’s have a look at:

The currency in which cashbacks are paid
How much merchants have to pay to receive card payments
How Crypto.com makes money

1. Cashbacks are in CRO, not $

Crypto.com pays out card cashbacks in a cryptocurrency that they created and own. The company can also sell CRO to pay for its daily operations, sponsorship deals, etc.

In other words, Crypto.com:

Created a cryptocurrency
Created a demand for this cryptocurrency (an investment into CRO is required to receive a cashback card, discounts on the exchange, etc.)
Makes us believe that CRO will increase in value (exciting roadmap ahead)

This led to an increase in the price of CRO and an increase in Crypto.com’s marketing budget (the company can spend more on cashbacks and sponsorships). When you stake your CRO, it also gives the company more money to invest or lend out (cards are feeless, but require a stake).

While Ponzi schemes rely on funds from new investors to pay existing investors, Crypto.com has the luxury of sitting on a $5 billion coin. However, the current setup relies on the demand for (and value of) the CRO token.

2. Merchants pay for every transaction

Every time you use your card, merchants have to pay 1–3% to receive your payment. Crypto.com gets part of these interchange fees (Visa receives the rest) and shares it with its users.

Because of the scale of Crypto.com, it’s likely that they were able to negotiate a good deal with Visa. It’s pretty simple to pay out a 1% cashback if you get 1% from merchants.

3. Conversion business model

Crypto.com earns billions of dollars per year through its other products such as the crypto exchange. Crypto.com is notorious for charging high fees to users that buy crypto in their app. The company gets away with it because many of its users are new to crypto.

In fact, the business model of an exchange or broker is one of the most profitable business models in the world. As the user base grows, revenues go up, while costs don’t go up to the same extend.

Because of network effects, the winner takes it all. Apps such as Crypto.com therefore have an incentive to (over)spend on marketing to try and become the dominant platform.

The cashback cards are a marketing tool to attract and retain users. Part of these users are converted to profitable customers through their other products (= conversion model).

It is not a scam or pyramid scheme to offer something for free or at a loss, and to try and convert customers to other products where you do make money. In other words: sexy cards (cash outflow) -> daily user activity -> some users buy Bitcoin and pay high transaction fees (cash inflow).

Enjoy the ride

Nobody knows if Crypto.com will be able to sustain its business model and token value on the long-term. Don’t make it too easy for them by buying and selling a lot of crypto in their app.

(F)influencers will tell you to buy and sell crypto all the time because that’s the only way they are able to make daily content. Same for newspapers. Exchanges such as Crypto.com are the ultimate winners of this bad advice.

Considering to get a Crypto.com card?

Read more about the cards here.

Please consider that Crypto.com has a strong incentive to push the price of CRO up, but success of the company does not per se mean success of its token (cf. the crypto phrase “Token Not Needed”). It’s reasonable to assume further cashback reductions as the market matures.

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