Customer loyalty points are one of the biggest drivers of growth for companies. A study by colloquy suggests that every US household participates in at least 29 different loyalty programs, and there was a total of around 3.3 billion membership in the US alone.
These loyalty programs help companies improve their engagement with customers, and are now used across several industries like retail, travel, hotel, banks to name a few.
At the moment, some of the major hurdles faced by these loyalty programs are:
- Getting the customer to sign up for a new loyalty program as the onboarding process is time- consuming and cumbersome.
- Interoperability between systems of different organization. Most of the integration is either done manually or via some sort of API hooking the systems up.
- A lot of paperwork is involved that increases the overhead cost substantially.
Blockchain can try and answer some of these questions:
A blockchain provides a distributed ledger that is present with each of the participating organization. Thus, the problem of interoperability is solved substantially, as each participant has access to the same shared data and can thereby verify and see the transactions for themselves. This decentralized system forming a Blockchain loyalty program would cut down disputes to almost being non-existent.
Another advantage of a Blockchain loyalty program would be a seamless experience for the customer, who no longer has to manage her points across different programs. There could be one digital wallet that can contain their loyalty points and these can then be used across the programs of all participating partners.
Smart contracts can then be used to distribute the redemption of loyalty points based on a pre-decided algorithm that has been arrived at via consensus. This would eliminate the need for the excess paperwork and the hassles of current API integration.
Every time a transaction happens, it gets stored in the ledger in the form of blocks, with each block referring to the previous block. Once a block has been committed to the ledger, it can no longer be changed. This immutability of the ledger would ensure that there can be no frauds, and the entire history of transactions can be traced down to the very beginning of the system.
Security too is taken care of in a Blockchain loyalty program, as all transactions are cryptographically signed and stored in an encrypted manner.
However, there are some other challenges that one needs to think about. For example, while businesses might come together to share the loyalty program, they might not want to share the customer behavior information. Similarly, most travel loyalty programs operate along multiple currencies and thus, the currency exchange and how that would be handled also needs to be thought about. Another concern is the initial investment needed to set up such a system.
These challenges aside, a lot of development is already underway and companies like IBM are partnering with other small firms to develop applications for Blockchain loyalty program. Early adopters chance to gain a lot from being part of a disruptive solution.