How Blockchain Can Provide Instant Redemption this Holiday Season

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It’s now time for pumpkin spice everything, but before we know it November, December, and the holidays will be here. During the upcoming busy shopping season, marketers looking to retain the more valuable returning customers realize loyalty programs are a no brainer.

And while these programs have grown rapidly across financial services, travel, retail and consumer industries, they lack consistency, personalization, and often expire before they can be redeemed. According to the 2015 Colloquy Loyalty Census, the average U.S. household participates in 29 different loyalty programs but are only active in 12 of them.

The result is a disorganized maze of point systems and redemption options—a burdensome process for consumers to exchange value among different program partners. There is no one-stop “digital wallet” for loyalty points. This is due to a lack of consensus between different providers or partners on how to best convert small basket, or smaller value, items between them to generate incremental value. For example, with current systems customers cannot convert accrued points from an airline’s loyalty program to put towards a cup of coffee at the airport. But a cup of coffee keeps a customer engaged with the loyalty programs—think how often a consumer buys gas versus airline tickets to Hawaii?

Unused loyalty points can also create large balance sheet liabilities, costing businesses both time and money. A recent study looking at the changing attitudes and behaviors of over 28,000 North American consumers found a ton of loyalty points go unredeemed—topping $100 billion. A growing number of unredeemed points can cause big accounts payable and reporting issues. If consumers aren’t taking advantage and using the points, the incremental revenue connected with the value of loyalty points cannot be considered successful or useful for a campaign until they are redeemed.

Instant Redemption

For shoppers who plan to go to multiple stores this holiday and are juggling an array of loyalty programs, blockchain could provide instant redemption and exchange for many loyalty point currencies on a single platform. Current exchange networks use brokers who take a significant cut on the redemption and only work with large enterprises.

With blockchain technology, loyalty network would be streamlined, “peer to peer” networks with no middlemen. This open “digital wallet” would allow all size of retailers to participate, from big box to small town boutiques. This gives more variety and availability to shoppers since they do not need to review each program’s individual options, limitations, and redemption rules.

Blockchain is best known as the technology behind bitcoin—it creates a record of immutable transactions that can be shared between a closed group, or remain open across a broad network of participants. When a new digital transaction happens, such as a loyalty point issued, exchanged, or redeemed, a notice of that transaction is distributed to all the partners and participants involved and can be updated in near real time. New blocks of transactions are validated and linked to older blocks, creating a strong, secure, and verifiable record of all transactions, without the need for intermediaries or centralized databases. This can also help eliminate “accrual fraud” by partners or middlemen by creating validated, auditable transaction records

That’s why organizations of all sizes, from small startups to large technology companies like ours at IBM are teaming up to build the infrastructure and partnerships necessary for to run blockchain-based loyalty programs.

For example, Chinese credit card company China UnionPay is working with IBM to create a blockchain-based system enabling banks to integrate and trading loyalty points. In this system, customers can exchange points from among any banks they do business with to select the rewards they want. This will also allow China UnionPay cardholders to go to offline supermarkets and malls equipped with special point-of-service (POS) devices to exchange bonus points for goods by directly scanning them.

With recent industry disruption, new blockchain based loyalty programs like China UnionPay’s offers a new secure platform for consortiums or collaborative partners to execute transactions, reducing inefficiencies and frictions for the shopper.

These platforms will enable retailers to break the typical one-size-fits-all loyalty programs this holiday season. Instead of time intensive redemption processes causing customers’ lots of hassle, blockchain based loyalty programs may offer a digitally enabled one-stop shop for personalized offers—that will bring any consumer business some holiday cheer.