— Kenny Smith, principal and U.S. banking & securities leader and Eric Piscini, principal and global blockchain leader, Deloitte Consulting LLP; Tanmoy Jadhav, blockchain lab co-leader, Deloitte LLP; and Steve Fromhart, research manager, Deloitte Center for Financial Services
Blockchain technology has the potential to streamline administration, reduce costs, and improve customer experience for loyalty rewards programs.
Customer loyalty and engagement can make or break companies, and as such, loyalty rewards programs represent strategic investments for all types of organizations, including financial institutions, hotel chains, and merchants. Loyalty rewards programs come in many forms, from airline companies’ tiered points programs, which involve partnerships with rental car companies, hotels, restaurants, and shops, to Amazon’s upfront fee program, Amazon Prime, which provides free shipping and allows members to apply rewards points from participating companies toward purchases.
Enrollment in loyalty programs across various industries reached 3.3 billion memberships in 2015 and has more than tripled since 2000. Despite this rapid growth, customer loyalty rewards programs are not realizing their full potential. According to the 2016 Bond Loyalty Report, North American consumers belong to 13.4 loyalty programs on average, but are only active in about half of those. Moreover, only 44 percent of consumers said they are “very satisfied” with the loyalty program experiences.
Blockchain, a distributed ledger technology that provides new ways to transact and maintain records in a secure, digitized, interlinked network, has the potential to eliminate some problems. Blockchain technology can benefit different types of loyalty rewards programs. At the same time, it can significantly improve the customer experience by allowing consumers to access most, if not all, of their loyalty rewards programs in one digital wallet almost instantaneously.
Why Blockchain Is the Remedy?
Blockchain allows loyalty rewards program providers, administrators, customers, and other parties to interact in one system without compromising privacy or competitive advantage. For loyalty rewards program providers, blockchain has the potential to streamline execution of their programs with near real-time transparency, resulting in savings in administrative and personnel costs.
In addition, blockchain can be connected to social media and digital wallets and can interact with existing loyalty rewards program platforms through “smart contracts” — self-executing computer programs that automatically implement the terms of an agreement between parties when conditions are met.
How Blockchain Works?
Blockchain has the potential to allow near-instantaneous creation, redemption, and exchange of loyalty rewards points across programs, vendors, and industries in a secure environment. Through a rigorous online protocol, well-programmed building blocks, and smart contracts, blockchain has the capability to operate without intermediaries. Blockchain-enabled loyalty rewards systems incorporate:
Loyalty network platform. The platform can connect multiple organizations — such as airlines, banks, and retailers — and their loyalty programs. It facilitates their interactions, especially the converting and exchanging of points. The platform connects programs through blockchain nodes, which reach consensus about a transaction without the need for a middleman or clearinghouse.
Rewards applications. Rewards applications, via a digital wallet, will contain identities in the form of digital signatures, which store value in the form of loyalty tokens. Loyalty program providers can set up rewards applications that connect to the loyalty network to execute transactions for customers. Program providers can control exactly how their customers access and redeem rewards.
Loyalty tokens. On initiation of a loyalty transaction — such as the issuance, redemption, or exchange of a reward — blockchain creates a computer-generated loyalty token, which is a base for all types of rewards, including points. The loyalty token’s unique identifiers can be updated on each participant’s ledger and made available across the network. Several online protocol rules govern the way the points behind these tokens function.
With blockchain technology, the customer experience would be greatly improved. Consider Alice. When she purchased an airline ticket with a credit card, the airline and credit card provider could immediately transfer loyalty tokens to her digital wallet. During her trip, she could access the loyalty points and redeem them with another network participant such as a large hotel. She could also make micropurchases — a cup of coffee, for instance — along the way. The transactions would be instantaneous and secure, there would be only one user interface, and Alice could use the accumulated points in the manner she chose.
Creating Unique Business Opportunities
Creating an interlinked network will give loyalty rewards providers with well-developed programs unique opportunities to offer value-added services to other businesses. For example, a bank that provides merchant banking and treasury management services to small businesses could offer those customers access to its loyalty rewards interlinked network. In addition, the bank could offer its merchant customers the opportunity to join the overall interlinked network on the merchant’s own terms through a tailored rewards application. This would enable the business to offer its clients loyalty points that could be redeemed within a wider network.
The bank would be adding a valuable service to its small-business client while the loyalty network gained another vendor that could interact with other loyalty rewards programs. For example, a local coffee shop that was afforded entry into the network by its bank could offer its customers opportunities to use their coffee points toward accommodations at a hotel in another state in which it previously had little to no brand recognition.
Getting to Blockchain Implementation
What is needed to develop a functional blockchain network for loyalty rewards program providers? First, a blockchain network needs critical mass. It is crucial to get buy-in from at least a handful of loyalty program providers that already have well developed loyalty rewards programs and scale. Their success in developing programs will open the gates for others. Second, accepted protocols and standardization should be part of the process.
Hundreds of blockchain initiatives are already underway in various industries, particularly financial services, but standardization is far from a reality. One attractive feature of loyalty rewards is that they are not core to business revenue and operations, so companies may be more willing to join consortium efforts. A best-case scenario would be a blockchain facilitator such as a technology company building a network on a solid protocol and obtaining enough buy-in to develop standards for blockchain in the loyalty rewards space.*****
While blockchain technology is still in the early stages of adoption, it could prove valuable for loyalty rewards program providers. Companies willing to implement blockchain for customer loyalty programs could see benefits including lower administrative costs, improved customer experiences, and increased user engagement.
Source: https://deloitte.wsj.com/cmo/2017/03/07/using-blockchain-for-loyalty-rewards/
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