The Why’s and How’s of Using Blockchain for Rewards Programs

Loyalty and rewards programs are popular with customers but both program owners and members can struggle to get the most out of these schemes. Blockchain rewards programs can offer the transformative opportunity to reduce costs, draw in more participants and to provide flexible and faster redemption for members.

Customer loyalty and rewards programs are transactional in nature, with large numbers of participants. These are typical characteristics of blockchain applications, which is why the benefits of embedding decentralised principles in the operations of loyalty and rewards programs are so strong. Here’s what blockchain rewards programs can help you achieve:

• Cost efficiency. Blockchain delivers efficiency improvements for loyalty programs both from a transactional and a customer acquisition viewpoint. This is in part because blockchain reduces the need for intermediaries. Loyalty program transaction costs are high, merchants pay third parties $35bn a year to service credit cards tied to loyalty points. The scope for blockchain to deliver savings is wide open.
• Improved ease of use. Customers get frustrated with rewards schemes because they often end up with too many accounts, each with too few points to meaningfully redeem. Blockchain can provide the opportunity to centralize loyalty rewards, making it easier for members to enjoy their rewards, consequently encouraging loyalty.
• Increased availability. Loyalty programs are traditionally opaque systems proprietary to their owners. Blockchain can open up access to loyalty programs, drawing in more commercial participants. At the same time, the openness and efficiency of blockchain mean that members do not have to wait for rewards to credit, often an issue where the program owner must credit points for money spent at independent merchants.

A theme quickly emerges: blockchain is adept at solving many of the challenges experienced by transactional networks that are hidden behind corporate walls — such as loyalty programs. Apply blockchain to loyalty programs and these networks become cheaper to run, more available and easier to use.

How big businesses are reaping the benefits of blockchain

It is not hard to see why blockchain and loyalty rewards programs could be a good fit. But does this match translate into the real world? We’ve found several existing use cases offering clear benefits for loyalty and rewards programs:

• Amex removes barriers. American Express announced that it is leveraging Hyperledger to enable retailers to offer custom Membership Rewards offers. Retailer Boxed was one of the first to jump on the opportunity to offer Amex customers 5X membership rewards points on purchases.
• Singapore Airlines adopts blockchain. In an effort to make it easier for members of KrisFlyer, the airline’s loyalty program, to spend their miles, Singapore Airlines launched KrisPay. KrisPay is a blockchain-based payment system that lets customers pay at a selection of retailers using airline miles earned with Singapore Airlines.
• Rakuten plans its own currency. Japan’s e-commerce giant has issued $9.1 billion in loyalty points via Super Points since the inception of the platform in 2003. In February 2018 it announced that it is going to roll this massive loyalty program into a cryptocurrency called Rakuten Coin, with the hope of further engaging customers with its retail offering.

We’ve highlighted how the giants of credit cards, travel and e-commerce are embracing blockchain technology for their loyalty programs. Yet the effectiveness and longevity of these efforts heavily depend on the experience the program offers.

User experience will be key

Loyalty programs are a nice-to-have for consumers, but not a necessity. Anything that obstructs a good user experience will work against enthusiastic program adoption. That’s why a meaningful blockchain UX practice is essential when applying blockchain technology to loyalty and membership programs.

Blockchain mechanisms differ in the way they operate, in comparison to centralised networks. Blockchain UX best practice, therefore, includes a strong element of user education. Apply the following principles to ensure happy, engaged program members:

• Use a progress indicator or another method to keep users informed of the progress of blockchain transactions which can often take a minute or two to complete.
• Inform users of the importance of safely storing personal keys as loss of a personal key has serious consequences — unlike an online account password.
• Explain to users that blockchain transactions are irreversible: there is no way to undo a transaction on a blockchain.
• Include gamification to boost user involvement, but explain the game to users to ensure they get involved.
• Encourage user feedback to help you build applications more suited to user needs by learning from user suggestions and complaints.
• Re-assure users: security is at the top of everyone’s minds and you can instal a sense of trust by clearly displaying security notifications every step of the way.

Though efficiency, cost savings, and profitability are key drivers of blockchain adoption the user experience must stay central for loyalty programs to be loved and embraced. If you are considering adopting blockchain for your membership or loyalty program consider involving an enterprise blockchain expert.

Let’s discuss how you can achieve your business objectives through the cutting-edge opportunities blockchain offers.

Originally published at eleks.com on August 31, 2018.