The Future of Loyalty Programs

It’s a typical Saturday and you trek over to the grocery store, running your loyalty card through the register. Maybe they print you out a coupon. You head for a latte in your local Starbucks and clock up some more reward points. Then you go to buy that sweater you want at your favorite department store–only to realize you left your discount card at home. Loyalty programs, for the most part, are a huge waste of time.

Almost without exception, they are fragmented and inefficient. The user ends up with a wallet stuffed full of cards, or a bunch of online passwords they can’t remember. And more often than not, you never have the coupon or number when you need it. All the loyalty points go to waste and the offers expire. And worse than that? You can’t even transfer your points to a friend.

Gabriele Giancola CEO of qiibee, a decentralized loyalty ecosystem on the blockchain, plans on fixing the broken loyalty programs space. He says, “As a user, you have tons of loyalty programs and you get so many different points, but they are super restricted. You can’t only use them all on one platform, you can’t give them to your friends, you can’t exchange them with each other, so you as a user can’t use them.”

Loyalty Programs Are Huge Liabilities

Forgetting to use your Subway credit or air miles may not seem like a major issue to you. But all these points add up to quite a big problem. Actually, unused loyalty points are a large liability for many firms, since they constitute a promise for future services. Which puts the balance sheet out of balance.

In fact, the sheer magnitude of loyalty programs combined with changes in accounting in the US in 2015 can lead to losses of millions (even billions) of dollars. Delta Airlines, for example, ended 2015 with $3.9 billion in liabilities, and Marriott International followed closely with $2.6 billion.

Says Giancola, “Loyalty programs fail and have a lot of inefficiencies. Companies spend a lot of money on marketing and on the other side you don’t redeem the points and you actually create a liability for that company, because every point that you don’t spend becomes a liability in their balance sheet.”

That’s a lot of money that could be translated into real benefits for customers or cost-savings for companies. “It’s a huge amount of cash that companies have to put aside for unredeemed points,” Giancola continues, “and this is really making all these systems super inefficient. Then, of course, you have a lot of data that is stored in central databases which makes everything less secure.”

The Problem with Data

As the GDPR knocks at companies’ doors and social media scandals dominate the headlines, data is thrust into the limelight. And it’s only logical that multiple centralized companies holding onto your details makes you more susceptible to attack.

Blockchains can remove the central data authority from the system, ensuring consumers have control over their data and its use. They can also connect the fragmented loyalty market and enable users to actually use their points. And companies to free themselves from these crippling liabilities.

Loyalty Programs on the Blockchain

qiibee loyalty programs

“What we’re trying to do,” says Giancola, “ is put all these brands on one foundation, on our infrastructure which is the Ethereum blockchain, and enable users to exchange points with each other.”

So, instead of a pile of cards causing your wallet to burst at the seams or papers that get tossed in the trash, you have everything in one central place–a “loyalty ecosystem.”

He says, “Let’s say I use Starbucks and you use Subway. Maybe I want to eat a Subway and you want to get a coffee. We can exchange our points so you get your coffee and I get my Subway.”

And the brands get to reduce their liabilities, providing a win-win situation all around.

Is it hard to attract large global brands to a new concept and expect them to take a leap of faith? Not according to Giancola. He says, “Everyone talks about loyalty, they all want loyal customers and they all want to do something with blockchain. So loyalty on the blockchain opens another door right now.”

While many blockchain ideas are still ideas yet to be translated into working use cases, qiibee is already working with Lattesso, Switzerland’s second-largest chilled coffee producer. They announced the partnership at the Blockchain Summit in Zug, and started just this month. The first of many brands that the team plans to roll out.

But It Isn’t All Smooth Sailing

Building a loyalty ecosystem is a nice idea. But it isn’t going to happen overnight. Even if the major brands are chomping at the bit to get their loyalty programs “blockchain-ized” and even if developers work overnight, there are still plenty of challenges along the way. Beyond education and awareness, one of the main problems facing many projects, especially on the ethereum blockchain, is scalability.

Giancola explains, “We can build our infrastructure as strong as we want, but if the blockchain underneath doesn’t perform at that height, it is difficult for us to scale. If we can get all these awesome brands on board, that would be millions of transactions per day. Right now Ethereum is not able to manage so many transactions, so that will be for sure one of the first issues that we will encounter.”

Indeed, scalability of the ethereum blockchain is a point we often hear about. And ethereum will need to be as scalable as possible if we’re going to see mass adoption taking place.

If you’re one of those nervous people who can’t stand waiting in line while the glacially slow woman in front of you counts her coupons, you’ll love the future of loyalty programs.