Today’s Blockchain & Loyalty Points Landscape
Loyalty point programs are snowballing. The ability to earn additional rewards and benefit from a consistent commercial activity is an attractive proposition for both purchaser and business. Loyalty programs are up 200% since the year 2000. This trend is only accelerating as loyalty programs additionally increased by 20% between 2012 and 2015. With over 3.3 billion loyalty points accounts as of 2014, large incentives exist for optimizing this industry. Blockchain technology is a prime candidate for allowing such beneficial overhauls.
Users have signaled that they prefer to engage with rewards point programs that interface with their existing spending habits. Over 75% of respondents stated that they prefer rewards programs and special offers when it comes to incentives that companies offer. These programs substantially impact user choice regardless of whether or not the individual has an existing relationship with the business. Removing rewards leads to a 17% decline in choice probability when users have an option that does not offer a rewards program.
Despite this high demand, user retention and redemption of rewards points are difficult issues to reconcile. Over 20% of users never redeem their rewards points. While this may seem advantageous to the company in the form of additional business, these unspent points are persistent liabilities on the company’s balance sheet. Additionally, users that don’t redeem their rewards are 2.3 times more likely to defect to a competitor.
There is a significant disconnect between users’ demands for reward point systems and the lack of redemption and retention. While 57% of members stated that they would prefer a mobile app for the rewards point systems that they utilize, a whopping 49% were not aware if there was a mobile app available. Stated user preference and the actions that users subsequently undertake are clearly at odds with one another due to the heterogeneous nature of rewards point systems.
Time preference also plays a significant role in how customers feel about the brands with which they interact. Coupons and in-store incentives must be seamless to retain customer’s interest long enough to secure them as repeat customers. Over 54% of surveyed participants stated that it takes too long to receive rewards from a company’s program.
Blockchain technology is poised to disrupt the reward points systems industry in several positive ways. The immutability of blockchain presents an ironclad use case for companies that seek to mitigate losses and attest to the integrity of the user’s rewards. Hacking and fraud currently plague electronic rewards systems as tech-savvy users have become aware that these cash-equivalent points have intrinsic value. Ill-gotten gains in the form of points can be either fraudulently redeemed directly for items or, more often, are sold at a steep discount in a secondary market. By utilizing a distributed ledger, companies can confirm that redeemed points are valid and assist law enforcement in tracking the origin of falsified rewards.
Countering fraud in this manner positively impacts a company’s administrative expenses as well. The administrative overhead associated with loss prevention reduces drastically due to the automated nature of verification. By assuring that falsified reward points are not redeemed, blockchain can prevent this fraudulent behavior from becoming an actualized loss on the company’s balance sheets. Blockchain can revolutionize the rewards point industry through fraud prevention alone, but that’s only the tip of the iceberg.
Protecting customer’s personally identifiable information (PII) is a significant concern for companies that retain user data. Blockchain’s immutability and security offer unwavering consumer protection. Currently, most user data exists on an outsourced or proprietary, semi-secure database. Blockchain’s architecture makes any breach of security immediately detectible and highly preventable due to the consensus mechanisms involved.
The issue of timely point redemption is another feature with rewards point systems that blockchain seamlessly improves. The 54% of users that are dissatisfied with the amount of time it takes to redeem rewards would be relieved with the real-time settlement abilities afforded by blockchain technology. Turnaround times that often take days, and in the best-case hours, can be reduced to seconds with this disruptive technology.
Relevant application of blockchain for reward points extends beyond the realm of possibility. Many companies are currently experimenting with blockchain for their reward point systems. Rakuten and AirAsia are two companies that are already actively working on migrating their rewards points systems to blockchain tokens. Both companies cite fungibility and programmatic rules as important selling points in their decisions to migrate. Singapore Airlines and American Express are also piloting trial programs for similar use cases with blockchain.
While no company knows what the future holds, many industry participants project there to be a homogenous reward point marketplace soon. Likely powered with blockchain, this shared marketplace will protect the competitive advantages of large industry players while offering smaller businesses a seat at the table. Similar interpretations entail a handful of common marketplaces among participants in a specific industry, such as the hospitality and restaurant industries.
There are promising levels of user protection, fraud prevention, and real-time settlement potential afforded by blockchain technology. Experts estimate that there is over $51 billion worth of reward points issued each year, with that number growing annually. With the application of blockchain, this figure can quickly increase by orders of magnitude. The ease of access and homogeneity afforded by this disruptive technology complements the flourishing industry of company-specific rewards programs. Given the significant companies currently experimenting with blockchain, you may even be using one at your favorite retailer, unknowingly.
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