Blockchain to Expand into Customer Loyalty Programs

by Spencer Gisser | 02/10/2017

Blockchain is transformative

IBM is at the vanguard of blockchain, focusing on its applications for banking and financial technology. The company sees blockchain as a way for the many competitors and collaborators in a business network to share data such as bank routing codes. Previously, all information and requests for confirmation had to be forwarded to a central authority, a bottleneck for every participant in this configuration. With blockchain, the leger of all transactions across each partner is distributed. This allows banks and partner organizations to consult an accurate and automatically updated copy of the leger that is stored on their own systems. The leger can be available to all parties of an agreement, including banks and their partners, providing a secure and shared view of every transaction. IBM demonstrated this capability by implementing blockchain for Crédit Mutuel Arkéa last year.

Blockchain has also transformed direct cash transfers. Bitcoin and similar crypto-currencies allow anyone and any corporations to directly transfer money without the involvement of banks and across any combination of countries and currencies. These digital currencies are built around the security and usability of blockchain as a distributed financial leger. Even though no bank or government backs these digital currencies, they hold value because of the bedrock certainty in the accuracy, security, and their ease of collaboration.

Moving forward, a key application of blockchain will be its usage in retail rewards and customer loyalty programs. Its chief benefit is in allowing companies to join their rewards programs in ways not previously thought possible, and it would simplify rewards programs by linking multiple programs that consumers are already part of.

What is blockchain?

Best known for its usage within the Bitcoin system, blockchain is a log of all transactions within an informational system. Each record is built on top of the previous one and is verified by a vote of participating computer systems. Records of transactions cannot be deleted or changed. Those who are given access to the blockchain in its entirety have a permanent ledger that can be used to sort through transaction and user data, have a time-stamped record of every single transaction, and ensure the record’s security even against cyberattacks originating from compromised admin accounts.

Blockchain will allow businesses to link their rewards programs together

Joining different corporate informational systems with a digital leger is what IBM has already accomplished in the banking sector. Likewise, so long as the format of their blockchain is compatible, multiple businesses can integrate their customer rewards programs and information together. The security inherent to the blockchain structure will ensure that all participating companies keep accurate records, and any participating business can easily begin or end its participation in the joint blockchain record.

Blockchain implementations of customer rewards programs will give businesses a secure and verifiable record of transactions, particularly for their rewards programs. This technology’s record at solving problems is proven: blockchain is what made Bitcoin the first digital currency to finally solve the “double spending” problem, in which customers can sometimes spend a single unit of digital currency multiple times. Although modern customer rewards systems now have built-in protections against this problem, its impossibility within a blockchain deployment makes blockchain an attractive collaboration tool - different businesses with different rewards programs will not have to worry about whether their partners maintain double spending protections.

Rewards points will be transferrable across participating businesses. Retailers and other businesses could take advantage of common markets to enhance the usefulness of their rewards programs to their customers. Travelers, for example, could book a hotel and receive automatic discounts at nearby restaurants through their rewards app. Likewise, a group of museums could offer joint discounts and joint rewards programs. Because of the potentially large number of participating businesses, rewards programs would become much more enticing for customers.

Consumers will benefit from the linkage between different retailers’ rewards programs as it will decrease the total memberships that customers already have to keep track of. According to a joint study by the loyalty marketing publication Colloquy and the loyalty technology company Swift Exchange, the average American household participates in 18 rewards programs. The difficulty in tracking memberships results in $16 billion of unclaimed points and miles per year. With joint discounts and rewards, customers will be able to track their rewards much more easily and retain the bonuses they have been given. There are currently rewards aggregators such as Award Wallet and that help consumers track their participation in different rewards programs, but the need to give them login information to different rewards programs presents a security risk, especially given the prevalence of password reuse. Fortunately, the linking of different rewards programs should reduce the number of separate logins these websites require, freeing these businesses to track points safely. These companies will no doubt be at the forefront of advancing blockchain-based rewards programs in the future.

Retailers could offer detailed customer information to the brands they carry

There have always been barriers to retailers and brands they carry working together. These companies often use different information systems, businesses frequently lack an automated process to provide information to their partners, and transaction information is often spread across multiple databases. With blockchain, businesses could share an automatically updated record of every customer transaction with the brands they carry. With this new source of information, brands could gain high-resolution information about their customers in terms of geographic location of purchase and customer profile information as well as real-time purchase information.

Mobile apps are part of the solution

Rewards programs based on loyalty cards are no longer realistic for systems involving multiple companies. Different businesses might join or depart groups of companies that take advantage of a blockchain-powered rewards system, and it could be very difficult for consumers to keep track of which businesses might be party to a single rewards program, especially given that each rewards card could easily be used for over twenty participating businesses.

The only way to move forward with a blockchain-powered rewards system is through mobile apps. These would provide consumers with accurate, up to date information on which businesses are currently participating in a joint rewards program, as well as a guide to each company’s loyalty offerings. By providing an interface that can cut through the underlying complexity of blockchain implementations, consumers can get all the benefits of a flexible rewards program among multiple business without any additional hassle.

Blockchain is a transformative technology that is going to see broad adoption across different sectors. Anything involving the reliable transmission of real-time logs across organizations will stand to benefit from blockchain, and it is time to start thinking about where else this technology can be applied. Customer loyalty programs powered by mobile apps are a natural fit, and it is exciting to see how blockchain will spread into this area.

View the 2017 Enterprise Mobility & Connected Devices Research Outline to learn more.

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