By Shidan Gouran, Executive Chairman of Chain of Points

Let’s examine the main problems with loyalty programs today. Typically, they have very low redemption rates and fall short of increasing client engagement and retention. They also tend to be expensive to implement and operate, when done properly. To put things in perspective, it’s worth noting that even though more than 75 percent of US adults participate in loyalty programs, only 50 percent of the loyalty-accumulated rewards are ever redeemed.

If you examine the reasons for these issues, Blockchain solutions start to look very attractive. A significant cause of such low redemption and engagement rates is that users are inundated with disparate programs that simply confuse them and create an unnecessary cognitive load. Many of these programs lack an intuitive mobile app, altogether, which becomes a major hindrance to their adoption.

A blockchain-based loyalty platform provides a retailer with a common and open application development and interlinking protocol, and this allows a much larger pool of third party developers to create and integrate their solutions. For example, a developer could create a mobile loyalty wallet and payment solution with the ability to support and integrate with, not just one, but all loyalty programs on the Blockchain network. This makes it tremendously simpler for a consumer to use and engage with their merchants. Having an open platform also spurs competition and innovation since consumers get the option to pick and choose their preferred application for managing all their loyalty points across several different merchants the best and easiest to use third party solutions will win the market share, not just a handful of providers like mobile device manufacturers and credit card companies, for example.

Additionally, even current payments networks, cannot satisfy as a common interface to loyalty programs in a manner that scales, you need a solution that is automated and runs itself, like Blockchain networks do.  To explain this further, the credit card company can act as a common interface either by purchasing rewards in bulk from a merchant to satisfy the demand, or can sell a “last mile” service to a loyalty program provider. This is a rather complicated and hard-to-scale solution that requires a manual process of interlinking individual loyalty programs and payment networks. Therefore credit card companies will only partner with the most successful loyalty program providers. On the other hand, blockchain-based systems don’t suffer from this scaling issue because the system automatically supports any loyalty program on the blockchain network.

Lastly, blockchain-based rewards programs have the potential to allow the P2P transfer and trade of loyalty rewards within the blockchain network, without a central organization undertaking legal responsibilities as a middleman. The benefits and incentives this provides consumers are immense, including incentivizing them to use their points, via transferring, selling or exchanging them on open marketplaces for other loyalty tokens or even cash.

What we know is that performing these steps in a federated fashion, where multiple programs interlink with one another, has proven to be prohibitively difficult without the use of blockchains, it would involve many agreements and business negotiations and a considerable development effort to interlink siloed programs.

These are some of the major ways in which Blockchain technologies can disrupt and evolve the loyalty industry.

“Original publication in Finance Digest Issue 1 https://www.financedigest.com/finance-digest-print-magazine/”