It started as most conferences do: Product evangelists on stage, doing their best to excite the crowd and build energy for the days ahead. This, however, was not a normal conference. It was Loyalty Live 2018, the “first conference in the world with the sole focus of bridging the gap between the world of loyalty rewards with the world of blockchain technology.” The evangelists were all-in on blockchain not just as a technology but as a way of life. It would prove to be a long two days.
After listening to a few hours of why centralization is evil and how peer-to-peer is the only way to reduce friction in commerce the conversations began to veer into loyalty. Instead of concrete concepts the panel of experts began to opine on how blockchain would speed consumer enrollment in programs; when pressed for details none were offered. We heard how blockchain would bring about an end to breakage of points, a position that is either good or bad, depending on your point of view. And we heard how “tokenized cryptorewards” would drive engagement and convert the current liabilities on a company’s balance sheet to be assets. Billions of dollars to be conjured out of thin air, if you believed the folks speaking. It was far, far worse than expected.
Does blockchain kill the breakage of points? Of course not. But you’d be hard pressed to find that answer at #LoyaltyLive.
Oh, and it was suggested that tokenized points should be carried on the books as an asset, not a liability. Not by an accountant, of course.
— Seth Miller (@WandrMe) October 17, 2018
Day one of the conference was spectacularly frustrating. A couple tiny nuggets of useful information were lost in a sea of bad ideas and outright idiocy. Day two finally offered the opportunity for a longer session – hosted by David Feldman of Catchit Loyalty and myself – dedicated to explaining why all these ideas were bad ones. Just 20 minutes, but enough time to dispel some of the many misguided ideas floating around the event.
The friction of transactions is frequently cited as a pain point for consumers. Why does it take days or weeks for a points-earning event to post to an account? Why is it so hard to link accounts across programs? Fortunately blockchain is going to solve these problems. Except not really.
The speed of transaction posting is a very real problem, but not one that blockchain will likely solve. Countless blockchain evangelists touted the technology but all of them missed a key factor: The transactions are not being processed in real time in the host systems. Without that real time data it is impossible to post them into a loyalty system in real time, much less to a partner program. The batch file process so commonly used is far from elegant, but it is surprisingly effective. Especially for large volumes of transactions processed in bulk. Some programs have progressed from “archaic” FTP transfers to the more modern shared DropBox folders as a means to move the data, but the underlying process of export, import and reconciliation remains mostly unchanged.
Maybe blockchain is the solution to this problem. Then again, direct API calls also can ease the process. And those calls are generally much faster for effecting the transactions. At some point in the future perhaps we will see blockchain-based technologies more relevant on this front. But the talk today about fixing these problems is years ahead of where it should be. Especially given how few of the transactions can be processed in real time at the origin. Opportunities on this front are years – not weeks – away.
People love blockchain. They cannot wait to hear that their favorite loyalty program adopted blockchain as the basis for its operations. They are familiar with what blockchain is and why it is so much better than legacy solutions and will flock to programs that use the technology. This was the lie being sold hard at Loyalty Live.
The reality is that consumers do not care what is running behind the scenes. And they should not care. There is no compelling reason for them to care. Claiming that a loyalty program is better because it runs on Microsoft SQL server instead of Oracle or MySQL is equally foolish. These are platforms that eventually deliver the necessary data to the program operator and rewards to the members. Trying to sell front-end solutions based on the underlying beck-end technology platform is a losing battle in nearly every scenario.
Convert your points into a tokenized currency and everything magically gets better. Even more than the tall tales told about why consumers care about the back-end systems running on blockchain, this concept of freely fungible points crept back into the conversation repeatedly throughout the two days. One speaker described an ideal world where points earned at Burger King could be redeemed at McDonald’s. Another described programs where the points value trades openly, letting “free market” forces determine the value of points. In every case it was assumed and implied that points value would consistently increase and that participation would consistently grow. They could not be more wrong.
The problem here is two-fold. One is the inherent bias of the group towards believing that unfettered fungibility is a perfect solution. The other, larger problem comes from not understanding how loyalty programs work and the underlying psychology and economics of the programs. If a loyalty program wanted to make its points convertible to currency that would be possible today. LoyLogic’s PointsPay solution launched in 2012/2013 in partnership with Etihad. Instant spending of points as cash without a blockchain component is not only conceptually possible but already available in practice. But it also is not especially desirable.
This concept is concisely explained by Dr. Akif Khan, Head of PointsPay for LoyLogic:
The aim of a loyalty program is to generate brand loyalty and repeat business – both of these aims are potentially undermined if the members of your program are using your points to actually engage more deeply with another program, and not redeeming through your own channels.
Not quite explicitly stated there, but mentioned in the presentation at Loyalty Live is the fact that every (decent) program wants its members to redeem awards. That success creates a virtuous lifecycle for member engagement. And often that redemption can come in the form of third party products. The critical point is that the program controls that experience, not the member. Without that level of control the programs cannot justify the multi-billion dollars invested in creating, advertising and supporting the currency platforms. This ultimately decreases the value of the currency for consumers.
The idea that rewards points can be reinvented as fully tokenized and fungible outside the program’s ecosystem is a quick trip towards destroying loyalty programs, not disrupting them.
The Good News
Fortunately, there is some good news on the blockchain loyalty front. A few people do understand where the two worlds properly intersect and some of the side conversations at the event were productive and realistic. Instant (or daily) settlement of accounts is one area being discussed and actively developed, but with new partners, not retrofitting existing relationships. Programs and vendors are looking at small scale ways to apply the blockchain concepts in their operations with limited exposure. Starting small and building up the platforms will allow programs to properly evaluate whether blockchain delivers legitimate value and can scale to the size necessary for success. These proof-of-concept and test efforts will fail as often as they succeed.
They are pragmatic tests, not pie-in-the-sky efforts to force-fit a problem that might not really exist into the blockchain template. At least not all of them are.