LoyaltyNetwork™: The Value Proposition

Dec 4, 2015 · Unlisted

Greg Simon, CEO & Co-Founder, Ribbit.me (@GregorylSimon)

This post is a follow-up to Ribbit.me Chief Blockchain Technologist Naol Duga’s Concept Paper, “Reinventing Loyalty.”

Ribbit.me’s LoyaltyNetwork is value innovation, as the world’s first full­-stack, self­-contained, blockchain­-based loyalty platform that can consolidate all existing rewards programs, making them interoperable, programmable, and smart. To participate, existing rewards programs only need replace the value layer in their current system, everything else can remain exactly the same.

In this post we compare our solution with the state­-of-­the-­art in the loyalty industry. (We defer the comparison of our blockchain with others, particularly Ethereum, to a subsequent publication.)

The loyalty industry is a $65B per year industry in the USA alone. It is completely fragmented across industry agents with no universal loyalty network platform. This fragmentation is due to friction caused by an inherent lack of trust between agents, such as program operators and consumers.

The biggest complaint by consumers in the loyalty industry is the lack of freedom of redemption and redemption options, negatively affecting brand value and loyalty capital. Program operators want to enter into bilateral and multilateral redemption networking alliances together. Redemption networks not only increase customer satisfaction by creating more redemption options, they also allow for the program operator to reverse the reward liability at less than book value, resulting in an accrual financial gain. It is a win-­win for all agents involved. These options are currently available to consumers, but they are cumbersome to use and often result in a significant amount of loyalty capital earned by the consumer to be lost during the cross-­redemption process.

Friction, and the resulting loss of Loyalty Capital value, is the single biggest factor preventing the successful proliferation of redemption network alliances, which are the first step towards the emergence of a universal loyalty network platform. The loyalty network removes this friction, allowing for dynamic multilateral redemption network alliances to be created, operated, and dismantled with ease. It is as simple as a few clicks on a dashboard.

Redemption network alliances are an attempt by program operators to increase redemption velocity while also improve consumer satisfaction, but they must also be aware of the impact on breakage. Program operators in the loyalty industry have come to depend upon breakage as a source of funding for their loyalty program. Breakage is an industry term for value of loyalty points not redeemed by consumers. Targeting breakage allows for the program operator to record and accrue less than the total outstanding loyalty program liability on their financial statements. This practice can be argued to be in direct contradiction with the generation of loyalty capital, eroding it by having an explicit business objective of incentivizing consumers to not value the program operator’s brand.

Migration from a practice of depending upon a certain level of breakage to the new industry standard of targeting less­-to-­no breakage creates a financial risk to the program operator, a substantial risk in some cases. No matter how large a program operator’s program or accrued breakage may be, the loyalty network allows any program operator to migrate from existing infrastructure to the loyalty network, while also carefully maintaining their existing level of target breakage even with an increase in redemption velocity. Redemption variance risk resulting from a change in redemption velocity, which often results in hundreds of billions of dollars of accrual accounting financial losses, can be significantly minimized, if not completely prevented, with the loyalty network financial liability management smart contract technology.

Program operators are aware of the value of consumer feedback. Loyalty Capital is generated by the bilateral or multilateral flow of data and value. This is why there are “Tell us what you thought” feedback cards on checkout, or services like “Yelp.” Most existing loyalty programs are currently focused on the unilateral program operator incentivizing consumer flow of data and value. The expansion into multilateral data and value flow using existing technology is friction prohibitive. The loyalty network removes this friction, allowing for tokenized data and value to flow in any direction, between any number of agents, incentivizing and rewarding any action of value. In the loyalty network all participants are defined as agents, meaning any agent can incentivize any other agent for any action of value, whether that action be purchasing something, providing service feedback, driving safely, exercising, a smart A/C turning off while it’s humans aren’t home, etc. The increase in data and value liquidity results in a significantly greater generation of Loyalty Capital.

All of these existing loyalty industry problems are a result of friction, making the ideal scenario of a universal platform economically unfeasible. The introduction of a frictionless universal loyalty network platform will facilitate an explosive growth of multi-lateral agent-valued behaviour incentification. Every existing or future loyalty program can be more effective and more efficient, increasing the program operator’s revenues and profits while also resulting in more satisfied consumers.

Questions and comments are welcome!


Greg Simon CPA, CBP

CEO and Co-Founder Ribbit.me



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Blockchain & Smart Contract Solutions for the Loyalty Industry

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