TomoCredit’s initial offer of a crypto rewards payout sounded too good to be true. Alas, it was. It’s still boasting up to 20% cash back, but with a very different structure that’s virtually impossible to sustain. Here’s how it works, and who can benefit the most from it.
Remember TomoCredit, the startup planning to offer a credit card rewards payout (in cryptocurrency) that would exceed 20%?
As I wrote in September, it sounded too good to be true. Alas, it was. They’re still boasting up to 20% cash back, but with a very different structure that’s virtually impossible to sustain.
I joined TomoCredit’s waitlist a few months ago after researching the company and speaking with its founder, Kristy Kim. Those of us on the waitlist recently received an email which detailed the following:
- TomoCredit is pivoting from crypto rewards to cash back.
- The earn rate starts at 1%. Each time you refer someone who is approved for a Tomo card, you receive an additional 1% cash back, up to 20%.
- Referral bonuses are valid for three months. They can be replenished with additional referrals.
- Current waitlist members will receive a 5% cash back bonus in their first month.
- Tomo cards are currently limited to only 50,000 customers.
- In the future, TomoCredit hopes to offer other types of rewards, including cryptocurrency.
This structure is obviously a lot more likely to be profitable and sustainable for TomoCredit, although it’s generally bad news for rewards chasers. Unless you have a massive social network that wants Tomo cards!
See related: Chase Freedom categories for Q1 2020 are improved
TomoCredit’s main competitors
Offering better rewards to customers who refer their friends makes business sense, and it reminds me of another fintech company I covered earlier this year: Zero.
That company sets a much lower ceiling for referrers, however. If you refer four friends who become Zero customers (or if you spend $100,000 on your Zerocard annually), you earn 3% cash back on your Zero card and 2% on your “average current position” (your Zero checking account balance minus your outstanding Zerocard charges).
You keep that level for the remainder of the current year plus the entire subsequent calendar year as long as your account remains in good standing. There are also lower rewards thresholds if you refer zero, one or two friends.
Another key difference between TomoCredit and Zero is their target customer. Zero caters to a more established, sophisticated audience. TomoCredit’s primary use-case is for young adults and immigrants who are new to credit.
TomoCredit is not expecting prospective customers to have high credit scores. In fact, many of its target customers are so new to credit that they don’t have credit scores at all. That’s why TomoCredit practices cash-flow underwriting to take a deeper look at applicants’ bank accounts, incomes and expenses to make lending decisions. In that sense, TomoCredit is a much closer competitor to the Petal® Visa® Credit Card.
I like the Petal card’s rewards structure more than TomoCredit’s new approach. Petal gives 1% cash back on eligible purchases to start, then 1.25% after you make six on-time monthly payments and 1.5% after you make 12 on-time monthly payments.
Remember that this card is aimed at people who are building or rebuilding credit – so while the rewards don’t sound amazing to an established rewards chaser, they’re quite good for someone just starting out. I feel the same way about Apple Card.
Petal and Apple offer my two favorite rewards cards for people with spotty or limited credit histories. Again, you could potentially do better if you refer your friends to TomoCredit, but I don’t like how its referral incentives reset every three months.
Petal and Apple provide more stability while you improve your credit, and then you can add even more lucrative rewards cards to your wallet once you achieve a higher credit score.
See related: You can now pay for breakfast with gold
Crypto rewards: An idea whose time has yet to come?
While TomoCredit’s initial crypto-centric rewards sounded gimmicky, I was coming around to the concept, especially for its target audience (young people with disposable income). When we spoke last summer, Kim said something that really stuck with me: “Our generation thinks of rewards as savings. Younger people see rewards as upside.”
I’m not a gambler, and I haven’t invested any of my own money in cryptocurrencies, but I could see the appeal of viewing crypto credit card rewards as playing with house money. Of course, that bet would have been a loser in recent months, and I wonder if that had something to do with TomoCredit’s recent pivot (I reached out to Kim for a comment but did not hear back).
When I published my first piece about the company Sept. 13, one bitcoin cost $10,360. Since then, it has taken a nose dive to $7,083 at this writing. Offering 20% crypto back never sounded sustainable. But what if they offered 1% or 2%?
That would be an interesting twist on the Fidelity Rewards Visa Signature card, which gives 2% back on all purchases with the stipulation that it must be redeemed into a Fidelity brokerage, cash management, college or retirement savings plan. That fits Kim’s “get upside from your rewards” philosophy.
I think there’s a place in the market for a crypto rewards card. Maybe TomoCredit’s initial concept was ahead of its time. I’ll be intrigued to see if they (or someone else) decide to give it another go sometime.
Because right now, unless you have a pipeline of potential referrals, TomoCredit’s concept isn’t particularly lucrative or unique.