Banks vs. Crypto Rewards: Are You Losing $1,400/Year?

For decades, banks have enjoyed a largely unchallenged position in the financial landscape, quietly accumulating substantial revenue from payment processing and deposit holding. However, the rise of stablecoins and their associated rewards programs is threatening to disrupt this status quo. A recent analysis reveals that US banks collectively earn over $360 billion annually from these sources, a figure they are fiercely defending as Congress debates new market structure legislation. This article delves into the battle between traditional banking and the burgeoning crypto world, exploring the financial incentives at play and what it means for consumers.

The $360 Billion Revenue Machine

US banks currently generate significant income from two primary sources: holding reserve balances at the Federal Reserve and collecting card swipe fees. In 2023, banks earned $176 billion in interest on roughly $3 trillion parked at the Fed. Additionally, they collected another $187 billion from card swipe fees, averaging nearly $1,400 per household. This totals over $360 billion in revenue solely from payments and deposits.

Reserve Balances: A Post-2008 Phenomenon

The substantial interest earned on reserve balances is a relatively recent development. Before 2008, reserve balances held at the Federal Reserve were minimal. However, following the financial crisis and the implementation of quantitative easing, the Fed adopted an “ample reserves” framework. This created a permanent pool of interest-earning deposits that banks could hold with zero credit risk. As of December 2025, these reserve balances stand at $2.9 trillion, and the Fed’s recent decision to continue purchasing Treasury bills suggests this pool won’t shrink significantly anytime soon.

The $187 Billion Toll Booth: Card Swipe Fees

Card payments processed $11.9 trillion in purchase volume in 2024, with merchants paying $187.2 billion in acceptance and processing fees – a cost of approximately 1.57% per $100 spent. The eight largest issuers control a staggering 90.8% of Visa, Mastercard, and American Express purchase transactions. Debit interchange alone generated $34.1 billion in 2023, with network fees adding another $12.95 billion. Credit card interchange fees are considerably higher.

Stablecoins: A Competitive Threat

Stablecoins, particularly those offering competitive yields, pose a dual threat to these established revenue streams. They offer a parallel system where users can earn returns on their holdings without routing funds through traditional bank balance sheets. While stablecoins don’t eliminate bank lending capacity (issuers still hold reserves in Treasury bills and bank deposits), they shift the capture of the spread – the difference between what banks earn on assets and pay on deposits.

Bypassing the Card Networks

Stablecoins also bypass the costly infrastructure of card networks. On-chain payments cost a fraction of traditional card network fees. If stablecoins capture even 5% of card purchase volume (roughly $595 billion at current rates), merchants could save approximately $9.3 billion annually. For banks, this translates to $9.3 billion in foregone revenue, doubling to $18.6 billion at a 10% market share.

In 2025, stablecoin transaction value reached a remarkable $33 trillion, according to Artemis, exceeding US card purchase volume threefold. While much of this activity currently occurs within crypto markets, the infrastructure is already capable of handling large-scale payment flows.

The GENIUS Act and the Fight for Control

The GENIUS Act, signed into law in July 2025, initially banned stablecoin issuers from paying interest “directly or indirectly.” However, exchanges have circumvented this restriction by routing rewards through affiliate programs, classifying them as loyalty incentives rather than interest. Banking groups view this as a loophole and are lobbying Congress to extend the ban to “all affiliated entities and partners.”

The Numbers Tell a Different Story

However, the data suggests a different narrative. Research commissioned by Coinbase, conducted by Charles River Associates, found no statistically significant relationship between USDC growth and community bank deposits between 2019 and 2025. Even under conservative assumptions, community banks would experience less than 1% deposit loss in a baseline scenario and only 6.8% in an extreme case. Cornell researchers concur, stating that rewards would need to approach 6% to significantly impact deposits – current programs typically range from 1% to 3% and are funded by Treasury bill yields.

The Scaling Rewards Pool

Stablecoins generate yield passively by holding reserves in Treasury bills yielding 3% to 5%. If platforms pass through half of this yield as rewards, the payout scales directly with the outstanding stablecoin supply. With a current market cap of roughly $307.6 billion, a 1.5% to 2.5% reward rate translates to annual user payments of $4.6 billion to $7.7 billion across the industry. If the stablecoin supply grows to $1 trillion, this figure increases to $15 billion to $25 billion annually.

This distribution competes with both low-yield checking balances and credit card rewards programs, ultimately funded by merchant fees.

Bank Incentives: Defending the Margin

The core of the issue isn’t about reducing lending capacity; it’s about protecting existing margins. The $176 billion in reserve balance interest and $187 billion in card fees represent revenue streams requiring no lending risk. Reserve balances earn a spread over deposit rates, and card fees extract value from every purchase. Stablecoins compress both margins by introducing competition at the payment layer and offering users a direct claim on Treasury yields.

The Regulatory Endgame

Fed researchers note that stablecoins can “reduce, recycle, or restructure” deposits. Banks want to control this restructuring, prohibiting stablecoin rewards while promoting bank-issued tokenized deposits that keep balances within the regulated perimeter. This would allow users to have on-chain dollars while banks retain the deposits and the associated spread.

However, stablecoin platforms propose a different approach. If the yield ban applies only to issuers, exchanges can compete through affiliate revenue, lending returns, or trading fees, maintaining stablecoin attractiveness without direct issuer interest payments.

A National Security Concern?

China’s recent announcement to pay interest on the digital yuan, directly competing with dollar-denominated stablecoins, adds another layer of complexity. A US reward ban, while foreign digital currencies offer yields, could have significant competitive implications and even raise national security concerns. Pro-crypto lawyer John Deaton has labeled a US reward ban a “national security trap.”

The Decision Ahead

Congress must decide whether to interpret the GENIUS Act narrowly, applying it only to issuers, or broadly, extending it to affiliates and platforms. A narrow interpretation preserves competition, while a broad interpretation protects incumbent margins. Banking groups frame this as a fight about deposit stability, but the numbers reveal it’s a battle over $360 billion in revenue and whether stablecoins will be allowed to compete for it.

Mentioned in this article: USDC, Coinbase, Mastercard, Visa, John Deaton