Blockchain means we get to rethink what loyalty programmes can do

Ever since their inception, loyalty programmes have offered very specific and often very limited benefits. By changing the paradigm by moving to a blockchain-based model, Incent allows a completely new approach that goes far beyond retail.

We all know what loyalty programmes are, and the benefits they offer. Many of us have wallets stuffed with loyalty cards — the average American is signed up to more than 20 schemes — that offer us discounts with a given store or, occasionally, a network of stores. We also know that they’re not as successful as they might be. The majority of those cards go unused. The benefits of those schemes aren’t quite enough to get us coming back for more, and only a small proportion of loyalty programmes can be considered truly successful.

There are good reasons for this. Not all businesses are equal, for a start. Frequent Flyer programmes can make great sense for both customers and airlines. If there are going to be empty seats on a flight, the airlines might as well fill a few seats and, in doing so, increase brand loyalty and presence without costing them any more money. For the customer, there is high value to a discount on an expensive flight. It’s win-win.

Loyalty-as-a-Service

For other businesses, it makes far less sense. What if you’re a sandwich store with relatively low margins? First, you’ve got the costs of creating the scheme. Then, there’s the fact that every time someone redeems their reward points, it’s costing you something — meaning the customer has to buy something else at the same time to make it worth your while. It becomes an exercise in balancing the advantages of incentivising repeat custom against the liability you take on every time you issue a loyalty point.

This is the framework within which we think about loyalty schemes. They are pseudo-currencies that can be redeemed only with their issuing businesses. They are non-transferable, and have no cash value by design. The industry as a whole operates at the level of a barter system, a fragmented mass of distinct players all competing for a tiny slice of the pie. For many of them, the costs actually outweigh the benefits. It’s just that when everyone else is scrabbling for an edge, the costs of not having a loyalty scheme are even greater than the costs of having one.

Developing a loyalty programme that is hosted on the blockchain not only changes the economics that characterise current rewards schemes: it allows us to redefine how loyalty can be applied. Rather than consider it through the narrow lens of commercial interests, it enables us to build it into almost any activity — what we might call ‘Loyalty-as-a-Service’ (LaaS).

Blockchain changes everything

Creating a loyalty programme hosted on the blockchain completely changes the dynamics of the system. The paradigm shift comes from making tokens fully transferable — removing them from the control and the walled gardens of the issuing businesses and turning them into something more like private money. Transferability means tradeability, and so tokens will be valued at whatever price the market deems appropriate. Not only does this mean customers are rewarded with something of real, monetary value; it means that businesses are freed from the liability that comes with issuing a token that may in the future be redeemed. Their up-front costs are fixed and known. The token operates more like a kind of configurable cashback than the pseudo-money it once was. The more businesses that accept the same currency, the more valuable it becomes through network effect and constant demand from issuers.

The open nature of these reward schemes means their value is higher to customers, whilst for merchants there are reduced liabilities, set-up and maintenance costs, and lower friction. This clearly offers immense benefits. But the utility of such a scheme goes far beyond commerce, the traditional setting for loyalty programmes.

Expanding the loyalty sector

The businesses we’re talking to in our work on the Incent project have grasped the power of the model we propose, recognising that regular loyalty programmes are barely fit for purpose. However, the development of blockchain loyalty schemes offers accessible loyalty dividends for all kinds of organisations, commercial and otherwise.

Missed appointments cost the US medical system more than $150 billion a year. Appointments are skipped for a wide variety of reasons, but bills often go unpaid and there are real financial costs involved, as well as the human cost of delayed treatment. Imagine a scenario where patients arranged appointments through an app and were then rewarded for keeping them. Insights from the field of behavioural economics suggest that it would take a relatively small amount of money to reduce that $150 billion bill significantly. Or what about those important but non-essential tasks in the corporate world, like operational feedback to leadership, or any one of a hundred different forms or surveys that are helpful to the company but a low priority for the individual? The idea can be expanded almost limitlessly.
Open sourcing loyalty

Traditional loyalty programmes are difficult and expensive to administrate if done properly, or simply ineffective if not. Partly this is because they involve a combination of elements: a physical loyalty card, a proprietary app, accounting software, PoS hardware, and so on. Incent will allow all of this to take place at the level of an open-source app and protocol, meaning anyone can access it without cost.

Once Incent’s base wallet app is built the code will be made freely available, giving Incent a platform through which to incentivise developers and entrepreneurs to create and monetise their own applications, using our building blocks but developed to meet the specific needs they want to address. In the first instance, the Waves community and broader crypto world will have a means to lodge products and services trading for crypto and fiat, fuelled by Incent. The next stage is likely to be community-built plugins for existing e-commerce platforms — giving popular shopping carts another strand to their appeal, without forcing them to integrate bitcoin payments. BitScan’s business model (of brokerage commission only) leaves more than enough margin for a developer to monetise their specific application through a subscription model.

One of the most powerful propositions, however, is the idea that this open-source foundation could be combined with an App store, through which developers can build and market their own applications, all fuelled by Incent, and all bringing great volumes both to Incent and to the Waves network on which it is hosted — to the mutual benefit of those developers, Incent holders, Waves holders and node operators.