An attendee of my recent webinar, The Future of Blockchain, asked me about the pros and cons of using blockchain technology for implementing customer loyalty and rewards programs. Here's what I told her and then some.

Loyalty rewards programs are considered one of the most effective means for companies to attract and retain customers, and for increasing customer satisfaction and experience overall. However, loyalty rewards programs have their issues, including that they are typically expensive to implement and maintain. In addition, it can be difficult for companies to get the user experience right, resulting in loyalty programs that are "clunky" and time consuming for customers to use.

Benefits of Using Blockchain

Blockchain looks promising for building loyalty rewards platforms; however, commercial developments using the technology are still a work in progress. The main benefits to using blockchain for loyalty programs are cost-efficiency and speed, including the ability to add real-time response capabilities for participants and stakeholders.

Blockchain-based loyalty programs are seen as a way to reduce management costs via the use of smart contracts and the technology's ability to increase the transparency of transactions. Basically, smart contracts are programs (e.g., rules, digital contracts) encoding the terms of agreement among participants pertaining to the business taking place on the blockchain network. Triggered via transactions, smart contracts are self-executing and self-enforcing, thus allowing different participants on the block chain to conduct business with each other while helping to reduce or eliminate the need for intermediaries and third-parties (e.g., auditors and banks).

Blockchain's inherent security/cryptographic features are seen as especially attractive for loyalty programs because they can reduce costs by exposing fraudulent transactions (early on) and flagging mistakes (resulting from incorrect inputting, varying data formats, etc.).

In addition, Blockchain can bring real-time capabilities to loyalty rewards programs — including affording customers/members the ability to immediately create, redeem, and exchange loyalty/rewards points across partners and different vendors.

Drawbacks to Using Blockchain

The biggest drawbacks to using blockchain for loyalty rewards programs include high initial development and implementation costs and possible loss of control over data.

Currently, blockchain-based loyalty rewards programs can be expensive to build due to substantial start-up costs, which can largely be attributed to the “newness” of the technology being applied to such applications. That said, things are beginning to change, as we are now seeing new platforms and solutions specifically designed for implementing loyalty-rewards applications become available or which are in the works.

Another possible drawback with blockchain-based loyalty-rewards systems is that companies could lose some control over their data — control which they may currently have with their existing, conventional loyalty rewards platforms.

Commercial Blockchain Loyalty Rewards Platforms

Good examples of blockchain-based loyalty rewards platforms include Loyyal and Chain of Points.

Loyyal

Loyyal, working with IBM, has developed a platform that uses blockchain and smart contract technology which company reps claim can help significantly reduce the cost of setting up and operating a loyalty program. It also handles program liability management and allows for dynamic issuance/redemption options customized for each unique member relationship. Another feature that Loyyal reps are quick to point out is that their platform supports multi-branded rewards — (e.g., an airline/bank co-branded reward or an airline/retailer/consumer multi-branded reward).

Chain of Points

Chain of Points's platform is designed to incentivize participation in loyalty programs. The company focuses on the loyalty and gift card industries with a new cryptocurrency, called “Points,” which can be used to transfer and redeem loyalty rewards between merchants and customers. Blockchain enables each transfer and redemption to be secure and tracked, while Points facilitates a liquid marketplace between merchant to customer, customer to customer, and merchant to merchant.

Conclusion

Blockchain initially looks promising for shaking up the loyalty rewards program industry, and a number of companies are working on solutions to try and make this happen. That said, it is still early on when it comes to commercial developments, and, in the long run, it remains to be seen just how these developments will play out.

Finally, I'd like to get your opinion about the use of blockchain for implementing customer loyalty and rewards programs. In particular, what do you seen as the benefits and roadblocks to using blockchain in this capacity? As always, your comments will be held in strict confidence. You can also e-mail me at chall@cutter.com or call +1 510 356-7299 with your comments.