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Making blockchain real for customer loyalty programs

Posted By Nick Vivion, HEDNA Brand Journalist, Wednesday, October 3, 2018
Updated: Thursday, November 15, 2018

Loyalty continues to be a big business in travel and hospitality. Case in point: Air Canada recently splashed out US$345 million to regain control over its AeroPlan loyalty program.


This price is impressive but makes business sense within the frame of the popularity of loyalty rewards. According to the latest COLLOQUY Loyalty Census, there are 1.1 billion loyalty memberships across the various segments of the U.S. travel industry -- that’s nearly one-third of all loyalty program memberships in that country.


Given the popularity of loyalty programs, there’s a growing challenge to manage consumer expectations while fulfilling business objectives. Amidst the backdrop of one of the largest integrations of loyalty programs ever, it’s become clear that technology is an impediment to delivering better loyalty in hospitality.


As a solution to the complexity of modern loyalty, blockchain technology offers critical improvements to existing infrastructure. By improving security, enhancing personalization, and expanding flexibility, the blockchain could indeed fuel the next generation of loyalty in hospitality.


Improved security


Loyalty programs are often not secure. The average user logs in rarely, which means that breaches are discovered less often than more traditional balances held at banks. And, because users don't always connect loyalty points to their cash value, reused passwords make loyalty accounts easy targets for credential stuffing attacks.


For the hotel and airline industries, loyalty breaches costs are $700 million each year. This is an unwelcome sign that hospitality remains vulnerable to hacking. -Shape Security 2018 report


The distributed ledger makes it much more difficult to succeed with a coordinated attack on a given loyalty program. If a hacker gains access to one database, it would be hindered without verification from the other databases in the network.


The improved security of blockchain also allows for the expanded flexibility and increased personalization of loyalty programs.


Expanded flexibility  


Perhaps the most promising aspect of blockchain is the potential to expand flexibility for both consumers and brands. Linked loyalty programs aren’t simple to execute given today’s ‘walled garden’ approach to loyalty. Yet, consumers value interlinking so that they can redeem points across different brands.


Technology -- and a desire to protected walled gardens -- is the main impediment, says Deloitte in its recent report on the potential of blockchain-based loyalty:


“Large program operators with scaled and developed management systems would understandably be the most hesitant to join an interlinked network that could intersect with their own successful interlinking efforts (e.g., a large credit card issuer) and reduce their competitive advantage.”


This reluctance is overcome somewhat when considering how linked programs unlock an entirely new level of data insights. There’s value in understanding how consumers interact across different brands.


Interlinked programs also share liability across brands reducing overall exposure to technology-related security breaches.


Consumer frustration extend to steep fees related to points transfers. While part of this is related to the economics of loyalty as a profit center, legacy technology adds an unnecessary layer of cost to managing these programs.


Enhanced personalization


Inadequate technology creates lag time between earning and redeeming points. This frustrates consumers, who are used to real-time adjustments of account balances with other financial institutions.


This lag also can be an impediment to personalization, limiting the business impact of loyalty on customizing the travel experience. Deloitte puts this into perspective by outlining just how the traveler experience could look in a blockchain-enabled environment. It shows how rapid movements of earning and redeeming points can empower travelers and brands alike.

Outside of loyalty program interlinking, this blockchain-enabled experience strengthens a weakness of most programs: mobile.


According to the 2016 Bond Loyalty Report, 57 percent of respondents expressed interest in engaging with loyalty programs via a mobile device, but 49 percent weren’t even sure if their programs had an app. The same survey highlighted the prevalence of a poor user experience: 70% were not satisfied with their program’s website or mobile experience.


To best evolve the user experience, a single digital wallet for all loyalty is the ideal outcome. While this is the most user-centric solution, it’s unlikely. With that in mind, blockchain technology can empower brands to pursue partnerships unburdened by tech impossibilities. Consider the Starwood/Marriott merger: points could be ported to newly-formed shared wallets according to the program’s merger criteria.


Here’s how that may work, as far as loyalty program administrators maintaining control over user interactions:

 

"Loyalty rewards program providers control the nature of their customers’ interactions in a loyalty network by embedding certain parameters—such as how loyalty tokens value and disperse points, and how points are exchanged with those of other programs—in the reward applications. Hence, the due diligence that governs rewards transactions is executed during the upfront architecture programming in a blockchain-based loyalty network."


The future of loyalty


Loyalty programs are undoubtedly popular. Even so, devaluation of points and/or earning power leads to consumer uncertainty and distrust, program design often confuses consumers, and walled gardens lead to lower redemptions and ballooning liabilities on business balance sheets.


To address the failings of today’s loyalty, Deloitte proposes the following roadmap to a blockchain-based program:



Regardless of how it’s done, savvy hospitality brands know that it’s time to invest in the future of loyalty. To continue leveraging the power of loyalty, the technologies underpinning loyalty must evolve to meet ever-loftier consumer expectations in a hyper-connected omni-channel retail environment.


There’s more theory and thought within the full paper from Deloitte, called “Making Blockchain Real.”


Tags:  loyalty 

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