Is Blockchain the Answer to Loyalty Programs?

“You don’t earn loyalty in a day. You earn loyalty day-by-day.” — Jeffrey Gitomer

Customer loyalty and engagement can be the decisive differentiator for a company, and hence, loyalty reward programs represent a very significant investment for all types of organisations. We would guess that possibly everyone around you is enrolled in one or the other form of a loyalty program.

So why do we think that loyalty reward programs across all industries are “failing”?

The answer is rather straightforward, some reasons for loyalty and reward programs not realising their full potential are due to account inactivity, low redemption rates, time delays, and high system management & customer acquisition costs.

The primary reasons for these inefficiencies are the lack of uniformity in ownership and redemption rules across loyalty and rewards programs, which results in lack of activity by members.

A great solution would be to integrate different programs in an interlinked loyalty network, but such collaboration is not easy especially since the industry is ripe with inconsistency in infrastructure and obligations to protect competitive proprietary information like customers’ personally identifiable information.

Collaboration also usually results in introducing intermediaries that increase the risk of leaking information while adding more layers of other moving parts.

Also, a general lack of adequate digitisation across programs precludes many interlinking programs and is a primary cause for the time lag between reward points being made available in a manner that affords the fitting moment for customers to use them.

Why using a Blockchain makes Sense?

Using blockchains is fundamentally a new way to transact and maintain records in a secure, trust-less, distributed manner which will eliminate many inefficiencies.

Let’s discuss how it will reduce costs while benefiting the needs of different types and sizes of loyalty reward programs, all while significantly improving customer experience by allowing customers to access most, if not all, of their loyalty reward programs in one digital wallet.

If you think about it, loyalty rewards are also a type of digital currency, so it is only natural that the technology that enables Bitcoin to be transacted among multiple parties could do the same for loyalty reward points.

Connecting a fragmented world

Blockchain will allow instant and secure creation, redemption, and exchange of loyalty points across programs, and industries through a trust-less environment using cryptography instead of any trusted third parties.

Loyalty tokens

On initiation of a loyalty transaction, which can be issuance, redemption, or exchange, the blockchain protocol creates a loyalty token, which is a base for all types of rewards, including points. The loyalty token’s unique identifiers are updated on each participant’s ledger and made available across the network. Several online protocols and restrictions govern the way the points behind these tokens function.

Reducing costs

The hesitation of many managers of loyalty reward programs is understandable, given that they are being asked to switch to a fundamental overhaul of how transactions, customer acquisition, and systems management are executed. However, despite the fundamental changes it promotes, Blockchain is an additional layer, not a replacement for an existing system.

One of Blockchain’s attractive aspects is that it interacts with legacy systems through smart contracts that transmit transaction records accessible to permissioned users that integrate them into their legacy systems, while reducing costs in the long term.

Frictionless system

A blockchain-based loyalty network makes it easy to add and drop program partners and vendors. When the user uses her/his loyalty tokens earned from purchasing an airline ticket to upgrade their hotel room, the tokens are seamlessly working across vendors. Although this already exists among some of today’s loyalty reward programs, and within interlinked networks, Blockchain can make it ubiquitous and closer to real-time across more programs.

Near real time process

There are several reasons why loyalty reward programs are not credited to customers’ accounts promptly. for example, specific policies in place before authorising the release of “pending” points, however, many are logistical reasons, such as the lack of coordination between a loyalty rewards program issuer and a loyalty rewards program provider.

Blockchain can enable a transaction to be recorded and accessed by multiple involved parties in near real time, increasing the chance that loyalty rewards program provider can cut through coordination inertia to credit points faster.

Providing a secure environment

Blockchain creates an immutable and time-stamped distributed database entry of every single transaction ever made, making each transaction and its record easily traceable, but also rendering them immutable, preventing double spending, fraud, abuse, and any other type of manipulation of transactions.

Blockchain-based loyalty programs are not only tougher to hack, but also can provide security on multiple levels that were not possible previously. For example, all points are tokenised, which gives them unique identities that are extremely difficult to counterfeit and to access or corrupt information recorded on a blockchain, more than 51percent of its nodes must be attacked.

So we know inefficiencies are primarily due to fragmented systems that depend on centralised administration requiring the coordination of multiple parties through trusted intermediaries. However, we can see Blockchain answers this problem by taking trust out of the process and decentralising it.

By design, Blockchain can streamline execution and administration of loyalty reward programs, giving all participants real-time transparency, within the permissioned restrictions of the program provider.