When it comes to cashback paid in cryptocurrency, you won’t be surprised to hear that the rates to encourage you to use crypto to spend on your Visa or Mastercard are more tempting. A December 2022 survey of crypto-based cashback offerings showed cashback rates of up to 9%! These kinds of returns would be a honeypot for criminals if they could start exploiting the cashback offerings. But how?
The settlement of card transactions can take up to 5-7 days. For this reason, most card issuers don’t give you cashback immediately after you use the card to make a payment; they wait until the funds have actually cleared in whichever settlement system they use. But some crypto startups we looked at make the mistake of depositing cashback to your account immediately. And this opens up the theoretical possibility of being able to make a transaction, cancel it later, receive the cashback in the interim and spend it.
I decided to put the theory to a test. I found you could use the ‘buy now pay later’ (BNPL) credit offered at the online checkout by fintech Klarna to buy a £300 item on Amazon. Then you could add a Crypto.com card as your source of payments to Klarna. (We’re not pointing fingers at these firms or suggesting their practices are any worse than those in the rest of the industry, but they were the ones we used in our test).
To borrow £300, Klarna will ask you to pay the first third upfront (you pay in three instalments). So £100 will be taken from your Crypto.com card, and you will immediately get cashback for that purchase. Crypto.com pays its highest cashback rates not in cash but in its own token, CRO, which adds a layer of crypto risk to the scheme. But if you then cancel your purchase (you do not buy anything from Amazon using credit from Klarna), you will get your £100 down payment back. But your cashback could be gone by that time - sold for Bitcoin, Tether, or whatever.
Wrong payment categories
Most of the time, cashback is limited to certain types of purchases (‘merchant categories’, using card jargon): for example, you only get cashback if you use your card to pay in supermarkets or restaurants. If you use your card to pay another bank, another card firm, the taxman, for fines or government services–no cashback. It would also be unfair to offer cashback to someone using their card to play at the casino or to fund their online brokerage account to gamble on Tesla shares. In this case, you are not spending money, just moving it from one pocket to another. Nevertheless, some smart crooks found a way of using a Visa card to circle money in a loop between accounts in different Russian banks, picking up air miles on each transaction. And I found that by using a Crypto.com card to send money to BNPL provider Klarna, a financial services firm, we still got cashback.