Unleashing loyalty value with blockchains
HI-TRAC
The author’s shorthand for Happiness Index, Infrastructure, Talent, Regulations, Access and Capital. The six pillars that make UAE a great place for a startup. This week’s article is about the Happiness of being rewarded.
Motorists in Dubai get white points for good traffic behaviour. Anecdotal evidence suggests that globally, fines have had a patchy record of success in promoting safe driving. So, why not try a different approach? This interesting, pioneering initiative links back to the Emirate’s focus on happiness. Clearly, Dubai is capturing the high-ground in this area amongst global Smart Cities like New York, London, Hong Kong, Singapore and Sydney.
Behind this is a long history of efforts of businesses especially in the areas of retail, travel, telecom and banking to positively influence customer lifetime value — with the intent to capture a larger share of existing customers’ spending pie and have them stay longer with the business. What started off as simple loyalty identifiers and rewards cards has grown into a massive set of disaggregated loyalty currencies and offerings with limited interconnectivity or flexibility. It’s difficult to assess the dollar value of rewards points, cashback incentives, air miles and other forms of loyalty currencies but it would run into the hundreds of billions. In just the US market alone, according to colloquy.com, the value exceeds $50 billion. A large part of this currency pool does not get claimed. About 20 per cent by some estimates. Accounting practice requires that this liability is kept as IoUs in the books. The unused portion impacts the profit-and-loss accounts as well as balance sheets.
Another challenge is that the less sophisticated issuers of loyalty points focus on redemption relevant to their product. i.e. utilise excess capacity or inventory by exchanging it for something that end-users will theoretically find useful. So an airline will give you miles, a telecom company airtime discounts and a retailer price-offs. Banks have a different point of view. Since their currency is real money, their approach opens up loyalty to redemption of value from third-parties. Hence, credit card loyalty points are usually redeemed against value and capacity from airlines, retailers and telecom companies. This, in turn, created a new market for loyalty points. The banks have had the sharpest thinking on this and have been clearly been ahead on this game.
In time, consumers have come to expect rewards and loyalty points from the brands that they patronise. Nielsen’s Get With the Program report profiles earn-and-burn patterns across benefit types, regions and demographics. Flexibility and personalisation are top-most in the list of what consumers want.
Another equally interesting Harvard Business Review paper Blockchain Will Transform Customer Loyalty Programs looks at the power of blockchains to reduce the complexity of delivering personalisation and flexibility by creating interoperability and flexibility. The company featured in this week’s article, Loyyal, has been a subject of the study.
Matt Hamilton, director of strategic partnerships of Loyyal (loyyal.com) commented about what blockchains bring to this complex and fragmented ecosystem. He calls it The Internet of Loyalty. At the centre of this is the ability to create, make available and execute smart contracts between any two or more parties that want to collaborate. To know more about this would require a deep dive into the basics of blockchains. Out of scope of this article. Based on these contracts, transactions can be tracked uniquely and irrevocably based on the terms of exchange.
First on the list is interoperability. In the banking and telco world, massive global interoperability was enabled by exchange mechanisms. In the loyalty world, that hasn’t happened in a big way because of the different types of industries and the sheer number. Industry specific ones like SkyTeam, OneWorld and Star Alliance are airline-specific and limited in scope. Recognising this opportunity, UAE Exchange is also strategically investing in Loyyal. This will help further expand the choice of rewards available to its nearly 14 million customers.
The second area is multi-branded coalitions. So far, primarily the domain of co-branded credit cards backed by complex contracts between the banks and consumer brands, entry hurdles to this area are removed for multiple entities. Immediately airlines can have multiple co-brand card relationships if the business logic makes sense. And telcos can tie up with cinema house chains as easily. Or mall-wide reward platforms can be instantly available.
The third area of reducing complexity is liability-related. Consumers can have much more to choose from instead of the same old plain vanilla and usually unachievable rewards. Increased choice will drive increased usage and decrease liability. Plus the points can be expired legitimately if consumers do not bother to redeem.
The fourth area is dynamic issuance/redemption options customised for each unique relationship. What this means is that interoperable, multi-branded relationships can be formed and disbanded with a couple of clicks. Call it strategically tactical! Aiming for that year-end concert in Dubai? Just shop enough at your local grocer and let your hair down on New Year’s Eve. Or start up a charity that is funded by gym loyalty points.
Which brings us back to Loyyal and the amazing Happiness initiative in Dubai. What better way to get visitors and residents to enjoy the city than by rewarding them for things that they do well. Translate air miles and roaming charges to points that get you entry to the spectacular sights and sounds of this dynamic and vibrant Smart City. Loyyal and UAE Exchange are working together here and globally to expand this exciting initiative.
The writer is founding partner at BridgeDFS, a bespoke financial advisory firm (www.bridgeto.us). Views expressed are his own and do not reflect the newspaper’s policy. He can be contacted at ves@vyashara.com