Anyone betting on Singapore Airlines to launch the loyalty program blockchain “revolution” can now step forward to claim their prize. The carrier used this year’s Singapore Air Show as the backdrop for its announcement of the adoption of blockchain as part of its KrisFlyer loyalty program scheme. Specifically the company will launch a new digital wallet that converts KrisFlyer miles into a digital currency supported on a blockchain technology. Those points will then be redeemable for merchandise with various retail partners.
And, much like most other blockchain announcements these days, this one seems to fall short under closer scrutiny.
A new KrisFlyer digital wallet app utilising this innovative technology is expected to be rolled out in about six months. It will allow the extensive KrisFlyer membership base to use ‘digital KrisFlyer miles’ for point-of-sale transactions at participating retail merchants.
The first-of-its-kind lifestyle digital wallet app for an airline loyalty programme will be enabled through blockchain technology, using an SIA-owned private blockchain involving only merchants and partners.
This decision appears to be a solution in search of a problem. Indeed, the idea that somehow blockchain converts points into a “digital” asset from anything else is laughable. Points or miles in a program are only digital and have been since the very beginning of loyalty schemes. Account balances were always managed and controlled as digital assets. Redemptions via certificates (i.e. analog) were a thing for some time but even on that front technology has long since overtaken the architecture.
This groundbreaking development in which we will be using blockchain technology to ‘digitalise’ KrisFlyer miles is a demonstration of the investment we are making to significantly enhance the digital side of our business for the benefit of our customers. It is in line with our recently unveiled Digital Innovation Blueprint, under which we aim to be the world’s leading digital airline. – Singapore Airlines CEO Goh Choon Phong
Moreover, it is hardly the first effort by a loyalty program to offer a means to convert points into a more fungible platform and redeem for merchandise. Etihad and Loylogic partnered in 2012/2013 to deliver the PointsPay platform. That allowed points to be instantly and seamlessly converted to a credit line on a pre-paid MasterCard or Visa. No, it wasn’t blockchain based, but it was even more powerful than what is being proposed by Singapore Airlines in that it did not require pre-approval of the partner by the airline nor custom development and implementation code.
Blockchain-based systems preset great opportunities for distributed systems. Tracking transactions among members or sales to merchants might make a lot of sense were Singapore Airlines looking to truly release control of its points platform into the market, allowing for valuations to vary and market forces to drive the utility of KrisFlyer miles. But that’s counter to nearly every tenet of running a loyalty program.
Program operators generally want more control over partners and point valuations. The operators benefit not just from the transactions but also the data associated with those transactions. Releasing control of those aspects of the program drives down the utility of the loyalty program to the operator. Put another way, much of the value from a loyalty program comes from the centralized, controlled collection of data about consumers and their transactions. Blockchain works against that centralization effort.
Questions also arise regarding the scalability of blockchain into larger transaction history collections. The maintenance of block nodes and the full transaction history in a distributed environment ultimately requires more resources than a centralized store. Given that the blockchain in this case is private and directly controlled by Singapore Airlines the decision to distribute tracking onto multiple other nodes is particularly confusing. At least the risk of block forks should be reduced versus a public chain thanks to the lower number of endpoints contributing transactions to the chain.
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Aircraft image via Singapore Airlines