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.
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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.
Read More: Etihad shows you the money with new PointsPay partnership
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.
More from Loyalty 2018
Aircraft image via Singapore Airlines
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Stuart Dinnis Mark Ross-Smith David Feldman
Hehe…I’ve been with David most of the day. And bitching to him about this since the release came out. I probably owe him another beer for that. 😉
Seth I appreciated the beer while getting my suit fitted!
Seth Miller I think there’s definitely merit to blockchain for loyalty programs, but I agree, literally every implementation I’ve seen thus far doesn’t make much sense.
So we agree that this makes no sense. I’m still skeptical it can apply elsewhere in the loyalty ecosystem. What is the value in applying a distributed system where literally the core tenet in maximizing value is absolute control over the customer data and behavior?
Block chain is total garbage in loyalty.
Seth Miller B2B only. Because yes, B2C would make loyalty currencies more fungible (which due to the accounting rules isn’t in itself a bad thing) at the possible expense of loyalty. There’s valid B2B application between partners and related loyalty relationships. Some loyalty programs I know are actually kind of working on this in their own way already.
Jessica, I have no doubt that some are working on it. I still don’t see the value. They surely have existing B2B clearing systems today, right? What is the problem they’re trying to solve with blockchain instead of the existing systems? A block-managed contract doesn’t change the factors that often come into dispute around said contracts. No one disputes that it was signed. They fight over the terms and nuance therein. The blockchain isn’t going to change that.
Seth Miller Actually, from my discussions and experiences they actually don’t seem to have a clearinghouse, just predefined exchanges or “purchases”. I’ve also found a ton of holes in the way Data is exchanged (or not) so a distributed ledger with the defined contracts could be helpful there.
I remain *very* skeptical that distributed ledger is the solution that these problems call for. Can it work? Absolutely. But so can myriad other solutions that don’t have the same overhead requirements. Some of those disappear (or diminish to be close enough to such) with private chains but the general issue is not one that seems to demand distributed accounting. Setting up a handful of suppliers to access a common system rather than building a new infrastructure would be so much easier and cheaper.
Doesn’t mean it’ll happen and we all know that shiny toys get attention. But I’ll still be the guy over here calling out bullshit when I see it.
Charlie, you are a customer. I’d be mad/disappointed too. Unfortunately, i have no strategic insights to share in this case.