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Flooded with rewards points you’re not using? Bakkt’s got a digital wallet for them

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America’s consumers are sitting on an incredible $1.6 trillion in digital assets that, even in the new digital economy, are effectively being held hostage. You usually can’t exchange them for cash or cryptocurrencies, and in most cases you can only liberate those dollars by buying more from the airline or store that issued you the credits for favoring their products.

Of course, I’m talking about the baffling world of loyalty awards. But Bakkt Holdings, the startup that pioneered Bitcoin futures trading, is offering a digital wallet that collects, displays, and provides a marketplace for all of your points from restaurants, retailers—log in later for video games—and everywhere else you shop. Open the Bakkt app on your smartphone, and you’re entering an exchange that encompasses cash, cryptocurrencies, and loyalty points. Just a click will convert your Choice Hotels awards to cash for buying an Apple Watch, or trade your Wyndham Rewards for gift cards at TGI Fridays or PetSmart.

On Oct. 18, Bakkt will go public on the NYSE via a SPAC sponsored by Chicago investment firm Victory Park Capital, at an expected valuation of around $2.1 billion. The offering will raise $447 million to grow the platform. Intercontinental Exchange (ICE), the trading colossus that owns the New York Stock Exchange and first launched Bakkt, will maintain a 66% stake, original backers Starbucks and Microsoft will remain shareholders and, as Bakkt CEO Gavin Michael puts it, “like ICE, take nothing off the table in the IPO.”

Bakkt is targeting millennials and Gen Zers who increasingly embrace cryptocurrencies. Folks can trade their points to purchase Bitcoin at zero commissions on Bakkt’s proprietary exchange. They can zap the coins to a friend’s wallet as a thank-you for walking the dog. Or when your softball team gathers at the corner bar, you can reimburse the catcher paying for the beers by sending him Bitcoin instantaneously over the Bakkt network. It’s a snap to reload your Starbucks card with Bitcoin while waiting to order a latte.

Put simply, the Bakkt wallet is the first product that assembles all of these assets on one broad platform, and aims to make them seamlessly exchangeable. It’s an extremely challenging venture. Many companies want to maintain their existing programs that reserve points exclusively or mostly for buying their electronics, groceries, car rentals, or home improvement staples. So far, it’s unclear how many companies will allow their points to be swapped for cash, or will let Bakkt wallet–holders trade their airline awards for, say, upgrades at hotel chains. And as with all exchanges, attracting a large volume of participants is crucial to making the model work.

“We believe merchants can get far more benefit from their awards if they make them available for a broader range of purchases. Customers will appreciate those options, and value their brands a lot more,” says Michael, who before joining Bakkt served as head of technology at Citigroup’s Global Consumer Bank.

Though it’s still early days, that pitch has attracted an impressive array of merchants that includes Choice and Wyndham hotels, Starbucks, Quiznos, and Best Buy, and Michael says a big airline may be joining soon.

Bakkt’s evolution

Today’s Bakkt aims at a far different clientele than at its start. ICE founded Bakkt in August of 2018 as a vehicle for ETFs, mutual funds, and large institutions to trade Bitcoin using its newly created platform on the ICE Futures U.S. exchange. Its first CEO was Kelly Loeffler, the former Georgia senator and longtime top executive at ICE who’s married to its founder and chief, Jeff Sprecher. But the signature cryptocurrency failed to become a big source of business for banks, or for the most part entice Wall Street to introduce Bitcoin funds.

“We thought Bitcoin would go across the banking system and attract big asset managers, but it’s now bypassing the traditional networks,” Sprecher tells Fortune in an exclusive interview.

Instead, it was the consumer and small investor who rallied to Bitcoin. Now, all of ICE’s Bitcoin trading goes through Bakkt. “The consumer uptake is part of the reason we gave Bakkt its own Bitcoin trading brand,” says Sprecher. He notes that when Bakkt wallet–holders buy or sell the coins, the transaction sprints over the Bakkt platform, avoiding the regular “distributed” network that’s extremely slow and expensive. Instead, when you hit “sell,” the trade happens, and you get the cash, just as instantly as on an ICE stock sale. When you send coins to another party as a gift, the Bitcoin likewise arrives in the recipient’s wallet at the warp speed of an equity trade.

“Our proprietary network is much more efficient,” says Sprecher. “We can instantly convert digital assets to dollar equivalents and vice versa.” Bakkt recently clinched a deal with fintech Finastra that will enable customers at community banks and credit unions to buy and sell Bitcoin on the Bakkt platform.

For Sprecher, the new Bakkt model’s a natural for merchants looking to better manage their balance sheets and build their brands, and a magnet for the new generation of digital shoppers. “These companies are holding points on their balance sheets as liabilities,” he says. “They want consumers to use those points in a way that keeps them attracted to the merchant. For their customers, the attraction is that you’ve got cryptocurrencies, fiat money, and rewards that are all tradable and all in the same wallet, for the first time.”

Though Bakkt has shifted sharply from its original course, Sprecher’s foray into Bitcoin has already paid off big-time. In 2014, ICE bought a 1.4% stake in fledgling Coinbase for $10 million. “The trade was that we wanted knowledge to set us on the right path about cryptocurrencies, and they needed capital,” recalls Sprecher. “Coinbase held a number of educational sessions for us.” ICE sold its shares right after the Coinbase IPO in April for $1.23 billion, a windfall that raised its net income for the first half of 2021 by 90%. Sprecher calls the outcome “unbelievable, amazing!”

A landmark in Bakkt’s quick turn to consumer-centered fintech was its purchase of Bridge2 Solutions early last year. Bridge2 was a major manager of corporate awards programs, serving 1,400 clients; now, that business is a pillar of Bakkt. Hence, it’s serving the universe of merchants that are potential clients for its platform. Bakkt is conducting a big experiment. It’s finding that merchants have differing goals for their rewards, and it’s designing a model that covers all of them, while at the same time attempting to demonstrate that by opening your points to a wide range of trading partners, merchants can heighten customers’ craving for the products that yield those rewards.

Building loyalty

The strategies that retailers, travel companies, banks, and the like deploy to maximize the value of their rewards fall into three main buckets. First, many merchants simply allow Bakkt members to sell their points for cash, as well as exchange them for any other awards traded on the Bakkt market. Those “open for everything” players include the Choice and Wyndham hotel chains. Users can channel the dollars to purchase a panoply of gift cards from Zappos, Home Depot, Uber, American Eagle, and sundry other retailers. Bakkt offers those cards at a 5% discount, so a Bakkt member can get a better deal than an outsider buying the cards online, enticing the traveler to book even more often at a Choice Comfort hotel or Sleep Inn.

The second category consists of companies seeking to keep their points mostly or exclusively reserved for customers to exchange for their own products and services. In other words, stick with the traditional system. But keep in mind that Bakkt is already managing programs for hundreds of awards-issuers, many or most of which now fall into that group. Even if XYZ retailer won’t allow Bakkt members to trade its points, those restricted points are still displayed on his or her wallet. Say the member wants to buy a smartphone from XYZ electronics retailer, but doesn’t have enough XYZ points. He or she can sell hotel points for cash that otherwise might have expired, and pay with Apple or Google Pay for the XYZ device using the virtual Bakkt Visa card. The member then gets additional XYZ points toward future tech purchases.

The third area is the one Bakkt wants to build. It’s aiming to create tailored programs that empower consumers to pay with their points for outside products and services that should strengthen their brands. Those “products you can trade for” are so attractive that customers will want to swell their portfolios of points by purchasing even more of the award-issuer’s goods and services. For example, an airline that flies frequently to Miami could allow customers to exchange points with the big hotel chains in South Florida, and let customers use its rewards at the airport coffee shops and local restaurant chains.

According to Nancy Gordon, Bakkt’s chief of loyalty and rewards, companies are still feeling their way in deciding which partners will do most to enhance their brands. “Companies have different objectives in deciding which brands to partner with,” she says.

Bakkt is wagering that by opening their awards to a much wider marketplace, America’s brands will win a far more steadfast following than if they’d kept points sequestered. Loyalty programs are a big growth business. Bakkt projects that by 2025, the total pool of rewards will mushroom from today’s $1.6 trillion to $5 trillion, for an annual growth rate of 25%. Its presentation to investors projects its sales totaling less than $20 million in the first half of 2021 will grow to $515 million in five years. EBIDA would hit $242 million or a nearly 50% margin, making Bakkt richly profitable. In just three years, Bakkt has undergone a radical makeover. We’ll soon see if this time it’s made the right trade.

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This story was originally featured on Fortune.com