Rethinking loyalty program using blockchain technology

To increase the loyalty of users of our payment blockchain service, Wirex, we have provided an affiliate program . However, the blockchain technology, by itself, can form an entirely new approach to the organization of loyalty programs, which may be in the future in service with many developing businesses. The translation material is devoted to this approach.

According to some estimates , more than 75% of America’s adult population participates in consumer loyalty programs, such as those offered by hotel chains, retailers, and credit card companies. Every year, American companies issue reward points and air miles totaling more than $ 50 billion. Launching a loyalty program is considered one of the most effective ways to improve customer retention rates for merchants. According to a survey conducted last year by Colloquy, in the US alone, customers participate in 3.3 billion loyalty programs.

Although some companies are at the top of the loyalty pyramid (GameStop, Amazon, Costco), for various reasons, other businesses have to work hard to develop deep and meaningful relationships with consumers. And one of the most unpleasant reasons for customers is the complicated registration process. Available data suggest that 70% of consumers refuse to participate in loyalty programs due to the lengthy registration process and other inconveniences. There are, however, good news, and it is that 57% of brands plan to increase the budgets of loyalty programs in 2017.

While most companies view loyalty programs as a business problem that needs to be addressed, technology companies, in turn, seek to rethink the ideas underlying the concept of an ideal loyalty program. Players such as Loyyal (a universal loyalty platform that takes advantage of blockchain technology to improve business performance and engagement), Chinese UnionPay in partnership with IBM ( developing a blockchain system for trading premium points), Royal Bank of Canada (exploring the possibilities of creating blockchain) promotion programs), Ribbit (the world's first blockchain-based bonus program) and Blockpoint (allows you to create distributed loyalty platforms) are working on the next generation of loyalty market solutions based on s on blockchain tools.
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Some of the reasons why we should pay attention to companies and initiatives that focus on using blockchains in loyalty programs are given in the recent Deloitte report entitled “ Blockchain Practical Loan Rewards Programs” , English)

Why is it considered that distributed registry technology is the future of loyalty programs?

Perhaps the most convincing argument that makes blockchain one of the hottest technologies for a wide variety of business cases is increasing profitability by reducing costs. Loyalty programs are extremely expensive in terms of development, implementation and support. In 2014, US companies spent a total of $ 2 billion on them.

The implementation of such solutions will definitely require significant investments. However, Deloitte believes that using blockchain tools for loyalty programs will reduce administrative costs by using smart contracts that provide relevant and transparent operational data to legacy systems, and thus reducing the costs associated with errors and fraud.

Thus, the centralization and unification of consumer experience within the framework of solutions for the loyalty market is one of the most significant advantages of using the technology of distributed registries. As explained in Deloitte, the blockchain will allow you to secure and instant redemption of premium points, their creation and exchange between vendors, programs and industries. At the same time, the conditions do not require a trusting environment, the work of which is based on the use of cryptographic verification mechanisms, and not the services of trusted third parties. Online protocol, automated transaction blocks and smart contracts allow the blockchain to operate without intermediaries.

The issue of security will hardly be a concern, since the blockchain offers a distributed base that is protected from unauthorized changes and tied to timestamps, fixing every single transaction that has ever been completed. Thus, “each transaction and its record are easily traceable and at the same time turn out to be irreversible, which helps prevent cases of double waste, fraud, abuse and any other manipulations with transactions”.

How can a blockchain-based loyalty program work be arranged?

Source of image and data on it: Making blockchain loyalty rewards programs

The positive aspects described above make it possible to understand what the operation of loyalty networks, based on blockchain protocols, might look like. However, at this stage, the achievement of mutual integration in real time seems to be the most tangible progress in this area: companies have made some progress in refusing to store their own data only in internal autonomous systems. Therefore, another question arises: what should a blockchain in such an ecosystem be - closed or public? And in which of these cases is the practical implementation of the distributed registry technology of business value?

Is the blockchain of commercial value?

At the moment, the answer to this question seems known. However, some see significant nuances in the concept of developing blockchain tools for the loyalty market. An in-depth analysis of some of the features of blockchain loyalty ecosystems was presented in a May article entitled On Loyalty Point Schemes and Blockchains ( Loyalty Point Accumulation Schemes and Blockchains ) , written by Anthony Lewis, director of the R3 research center in Singapore. According to the author, if the technology can make the launch and support of the loyalty system work cheaper, simpler, safer and more transparent in terms of controlling the issue and redemption of points, then it will be useful for business.

“It is possible to achieve commercial benefits on the condition that mutual integration between different programs is cheaper. The key role here is played by the API. Blockchain systems without an API tool for interacting with the outside world are just as unintegrable as systems without blockchains and an API, ”emphasizes Lewis.

To answer the question about the choice of a public or private blockchain, it is important to assess the level of control that companies want to gain over customer data and their activity. You should also evaluate the security and privacy risks that always arise when a new member company appears on the network.

On this occasion, Lewis says the following:

“Companies do not want to lose their most valuable asset: data on customers and their buying habits. They undoubtedly want to retain the ability to revise operations or cancel them, in case of detection of unlawful behavior. Therefore, the key defining properties of public blockchains (including resistance to outside interference) are not applicable in such cases.

As for closed blockchains, here I can imagine that for a group of companies participating in the general loyalty scheme, storing data in a collective closed blockchain can be useful. In this case, the blockchain will act as the only source of true information about the course of events in the system. ”