Bakkt's airline rewards service might come at the perfect time, and differentiate it from rivals

Well, it looks like Bakkt's expansion from crypto – and the upcoming launch of its retail-aimed application – couldn't have come at a better time. Possibly. 

I've chronicled Bakkt's windy journey from a bitcoin-centric app at the time of its launch in 2018 to what it has morphed into today: a wide-ranging service for digital assets, covering airline miles, reward points and cryptocurrencies. 

Indeed, the firm has revamped its website with details that offer new insight into its mobile app. The app, which allows users to purchase, sell and send bitcoin, also enables users to convert airline miles and rewards into cold, hard cash. The firm also announced a Series B fundraise, which has added a whopping $300 million to its balance sheet. 

Airlines are descending 

The product, which is slated to launch over the summer, is interesting given the market backdrop. As the coronavirus-linked market-bloodbath continues seemingly unabated, airlines have taken the biggest hit. Names, including Delta and United Airlines, have seen their respective stocks crater as countries lock their borders to foreign travelers, and others even limit domestic travel. 

Delta was trading down 7% during Tuesday's trade while, more broadly, stocks enjoyed a slight relief rally with the S&P 500 index trading up 2.77%. Similarly, United Airlines was trading down 7.64% at the time of writing. The NYSE Arca Airline Index is down 50% over the last month, compared to the S&P 500, which is down 25%. 

The perfect onramp?

So what does this have to do with Bakkt? Well, the notion that one could convert their airline miles, which they can't use due to global travel bans, into cash is an attractive differentiator from the vast number of places on the market where you can purchase bitcoin. The list of companies offering bitcoin trading continues to grow, including "incumbents" like Coinbase as well as newer entrants like BlockFi, CashApp, and Robinhood.

Meanwhile, airline points remain a big liability on the balance sheet of banks. The ability to convert points into cash reduces airlines' liability. That relieves some pressure in an environment in which folks are traveling less due to government mandates and the further spread of coronavirus.

"If people don't travel for the next few months, this gives them another avenue to easily redeem points for other purchases or even cash," Adam White, president of Bakkt, said. 

Consumers already have the ability to redeem their airline miles to buy things from certain merchants. Bakkt, however, aims to make those points more spendable. Instead of just being able to convert through one airline's points at a designated retailer, Bakkt will allow customers to spend at any merchant. 

Also, Bakkt will have additional functionalities with certain merchant partners. For instance, Starbucks will have direct integration with Bakkt that will allow them to receive payments at a lower cost. Those integrations could lead to new functionalities for consumers to engage with Bakkt or the merchant in the future.

At first glance, it might not make sense for an airline to want to give away free money. But since they are required to keep that balance for the customers who received them, they have to maintain that liability on their books. Thus, it makes more sense for them to free up that liability by giving fliers cashback that is worth less than the liability. 

This post has been updated to clarify Bakkt's relationship with merchants they are directly integrated with.