Technology

Following the premise that the core differentiating feature of a blockchain loyalty program is the use of a cryptocurrency instead of points and miles, the technology stack required can encompass a hybrid solution of both blockchain and non-blockchain technology, with most of the day-to-day processing conducted by a good-quality loyalty platform. The basic approach involves connecting a standard loyalty platform to a blockchain platform which can support cryptotokens, such as Ethereum, NEO, NEM, EOS,  and many others, plus support a secure blockchain data wallet for the blockchain marketing element.

Loyalty platforms used to be expensive and clunky but these days there are a number of high-quality white label platforms available around the world. My experience has been that the older the platform, the more expensive and inflexible it’s likely to be. Some of the best platforms I’ve seen are less than five years old, have been designed for easy API integration with other systems and provide highly complex campaign capability, app and digital wallet support, automated personalisation engine marketing capabilities and extensive analytics smarts.

A good quality loyalty platform should be able to deliver across four core areas.

Loyalty

Not surprisingly, the platform should be able to do all the basics, which includes supporting the creation of a member account, adding loyalty currency to the account and allowing the member to redeem the cryptotoken. It should also be able to support status tiers and provide status benefits to those members such as bonus currency and access to exclusive products or services. It should also be able to take feeds from third party platforms via API or batch data if the program supports earn from other companies.

Almost all loyalty platforms can support these features.

Engagement

This is where the quality platforms are separated from the ordinary platforms. A loyalty platform is ultimately a rules engine and the good ones can support incredibly complex rules. Imagine pumping in lots of different transaction data (such as the date and time, product SKU, cost, retailer) and personal data (such as a member identifier, demographic data and status tier) and having the platform apply a range of rules in real time to deliver a variety of specified outcomes. This may be bonus currency, cashback, new status tiers, free tickets or many other outcomes.

The best platforms can support multi step campaigns, whereby the member must complete a series of transactions and tasks to unlock a benefit, with each step being tracked and recorded as they go. This type of platform allows for advanced gamification and is useful for supporting automated member lifecycle marketing approaches. The best will have a machine-learning personalisation engine incorporated to generate complex one to one marketing communications.

Rewards

For a traditional loyalty program rewards are generally localised, with gift cards and consumer products sourced from local suppliers and shipped to local members. Major coalition loyalty programs with a global presence often struggle to deliver a consistent reward offering at an international level. The biggest access to the reward range will be in their home country, with a limited supply available to overseas members. The best example of this is frequent flyer programs, which may offer flights and an online store in their home country but only flights in other countries, due to the logistics involved in sourcing and shipping internationally.

Ideally the platform provider will be able to access a quality range of rewards for the country in which the program is operating, however the loyalty industry has evolved extensively over the last decade and many businesses now play the role of reward consolidators, offering large ranges and handling all the dropship logistics for fulfilment. This has made accessing sizeable rewards ranges quite easy. Thus, rewards range shouldn’t be a major factor in determining the viability of the platform.

From a blockchain loyalty perspective the reward is the cryptotoken, so other rewards are less relevant, making this program design very well suited to international expansion.

Payments

Increasingly, loyalty platform providers are stepping into the payments space as they chase convergence of technology and aim to own the transaction. This streamlines processing and allows for real time earn and redemption.

Most of the big coalition programs still run on batch processing; the retailer sends them a data file once a month of the member transactions, the program operator loads it into their platform, the point or miles are deposited into the member’s account and the operator sends the retailer an invoice to cover the cost of the points. This means long delays for the member to receive their points, plus additional administration for the program operator to raise invoices and chase for payment.

The smarter platform providers are taking control of the payment by either controlling the EFTPOS terminal (allowing them to deduct the cost of the points from the payment then hand the rest over to the retailer) or creating smart apps with virtual credit card features (where the member pays via the app and the platform deducts the cost of the points as a credit card transaction fee). These are incredibly significant features for blockchain loyalty because the expectation of members will be earning their cryptotokens instantly. With a highly fluctuating currency, members don’t want to wait four to six weeks to receive their tokens in case the price ‘moons’ in the interim period.

This set up also facilitates a more streamlined redemption process as well. With an app connected to a virtual credit card, the member can instantly sell their cryptotoken holding within the app and make a payment to the retailer in real time. Imagine walking into a store, selecting your products, opening the app at the checkout, cashing in enough cryptotokens to cover the cost of the purchase and walking out. In the background, the platform has conducted a real time transaction with an exchange to sell the allocation of cryptotokens and credit the fiat directly to the retailer. The cryptotokens used may be the ones linked to the loyalty program (which the member has accumulated from previous transactions) or it may be other cryptocurrencies they’ve accumulated elsewhere, such as Bitcoin, Ether and NEO. Streamlining this payment processing approach solves an existing shortcoming of cryptocurrencies and cryptotokens, which is the ability to easily access them and use them as part of everyday spend. By addressing this within the context of a loyalty program the program operator delivers the potential for a net inflow of cryptocurrency into the program, a considerable benefit for retail partners.

Once a platform has been secured, the next step is to connect it to a blockchain platform. While there are many blockchain platforms to consider, the most important considerations are the ability to create a new token, fast processing times and low (or no) transaction fees. One blockchain which definitely doesn’t fit this criterion is the Bitcoin platform, which can be slow and expensive to transact and doesn’t support new cryptotokens. Ethereum supports many cryptotokens and has supported the largest number of ICOs but it can also be slow to process transactions and, depending on the load, the transaction fees can be high. NEO and NEM are supporting new ICOs with solid and reputable platforms and many new players are entering this space, including ICX, CoinList, Republic, TokenSoft, Indiegogo, ICO Engine, BlockEx, EOS, Komodo, Stellar and Cointopia.

Additionally, the platform must be connected to a reputable and reliable trading exchange to buy and sell cryptotokens as required.

The ideal transaction flow works as follows.

The platform connects directly to the retail partners systems via API to collect transaction data. If the POS is old and cannot support an API connection, the retailer may choose to use something like a PiCo-POS terminal; a simple plug and play requiring no changes to the core system.

When transacting with a retailer, the member scans their unique barcode or pays via the credit card stored in the app to identify. The loyalty platform collects the member number, product SKU data and amount paid per product (basket level data) and applies the rules engine to determine the value of cryptotokens the member is entitled to. A transaction is processed via the blockchain platform and the digital trading exchange to purchase the tokens on the member’s behalf at the live market rate. The tokens are deposited into the member’s account, where the member can view them via the app, website or digital membership card on their mobile.

Members may also be able to earn cryptotokens by transacting with an extensive network of affiliate partners. By signing into their online account, or accessing the app, members can browse the network of partners and click through to their website to transact. On completing a transaction, the affiliate partner pays the loyalty program operator a percentage of the total spent as affiliate marketing revenue. The loyalty program operator uses this revenue to purchase cryptotokens from the digital trading exchange on the member’s behalf.

Under a blockchain marketing structure, members may also be able to earn cryptotokens for agreeing to receive promotions from their favourite brands, determined by analysing the basket level transaction data collected from retail partners. The loyalty program operator will negotiate with relevant brands to send a promotional communication via the loyalty platform to members, who will receive a small amount of cryptotokens if they view and engage with the promotional offer and bonus cryptotokens if they take it up. The cost of the cryptotokens will be paid for by the brand. The loyalty program can use the promotional revenue to purchase cryptotokens from the digital trading exchange on the member’s behalf.

The loyalty platform should allow for a wide range of sophisticated gamification approaches to encourage the member to build out their personal profile by providing bonus cryptotoken offers reward members for providing personal details, linking social media accounts, following the loyalty program on social media, filling in surveys, playing games, inviting family and friends to join and much more. The loyalty program operator may also decide to include status tiers for higher value members, a standard feature of most loyalty platforms.

Members can redeem cryptotokens in store at retail partners using the app or a linked credit card. The app allows the member to view their cryptotoken balance and the live market value based on the actual exchange rate. They can choose the amount they wish to spend and the correct amount will automatically be sold on the exchange, with the equivalent cash amount (less transaction fees) deposited into their digital wallet or directly to the retailer. Utilising the speed of the blockchain platform will allow this transaction to be processed in a fraction of a second for a fraction of a cent, ensuring that payment process isn’t delayed and the member isn’t left frustrated. It also ensures the retailer never needs to hold cryptotoken which insulates them from any value fluctuations risks.

Members can sign in to the retailer partner’s online account and shop as normal. At the checkout stage, the website will display their cryptotoken balance. The member will be able to pay using fiat currency, cryptotokens or a combination. The amount of cryptotokens chosen will be automatically sold on the exchange, with the equivalent cash amount paid directly to the retail partner.

Members can transfer their cryptotokens to their own personal digital wallet and use them to buy cryptocurrencies and tokens or sell for cash on participating exchanges. When processing the transfer, the member enters their personal digital wallet address and the transaction is added to the secure ledger on the blockchain platform, with the member’s loyalty program account showing a subsequent deduction.

Call centre agents have access to member account details to provide full support as required across phone, email, chat or app for both members and retailers. One of the main decisions a blockchain loyalty company needs to make when implementing the technical solution is whether to provide the member with a blockchain wallet or a standard loyalty account. Existing blockchain loyalty companies are differing on which solution to implement, therefore it is important both are explored. The simplest option is to provide the member with a standard loyalty account. Under this approach, when the member earns cryptotokens, the system purchases from the exchange and holds the cryptotokens in a central wallet and informs the member they have an allocation. The member can access their account and see they have cryptotokens available, but they are not physically stored in their account. This approach is the same as a prepaid debit card. While the user of the card perceives they have fiat currency stored in an individual account linked to the card, the fiat is actually stored in a single bank account along with the holdings of all other users. The advantage of this approach is it doesn’t require the creation of millions of wallets.

The more advanced option is to provide each member with their own wallet. The wallet can be hosted on an exchange or on a blockchain platform, and each time the member earns cryptotokens they are deposited into the wallet. While more complicated to implement, the provision of a cryptowallet which the member controls easily allows them to store and transact with other cryptocurrencies. Thus, the loyalty program can extend into a program which allows for a variety of crypto transactions. One company who has implemented this approach is EZToken, who have their own exchange which they host member wallets on. Their vision is a program which allows members to earn and redeem EZToken with retailers, but also buy and sell other cryptocurrencies such as Bitcoin and Ether, as well as transferring cryptocurrencies to other members and trading on the EZToken Exchange. Such approaches are set to play a key role in mainstreaming cryptocurrency adoption, all done within the familiar framework of a loyalty program model which has existed for centuries.


This is an excerpt from Blockchain Loyalty: Disrupting loyalty and reinventing marketing using cryptocurrencies (1st Edition) by Philip Shelper.

Blockchain Loyalty is available at all good book stores. Buy it now.