Generally, this happens because of the flag "Allow Banked Currency Redemption?" under Whitelabel >> iFrame Configuration >> Redemption is checked.
This flag is only applicable to Points to Currency type loyalty structure. If this flag is checked in any Points to Rewards structure, the users will be able to redeem the points as currency in their account incorrectly at the POS.
This flag also impacts POS settings. POS should be sending discount_type as a reward and should send its reward id. Instead, it sends discount_type as discount_amount which is incorrect.
Solution: If we'll turn this flag off, the users would not be able to redeem any points incorrectly.