Blockchain Platform choices for Loyalty Programs

Summary

Over the last decade, loyalty programs have become popular among consumers and companies have also rewarded loyal consumers with tangible benefits. In today’s consumer focused marketplace driven by social platforms where companies are adapting to consumer sentiments to redefine retail as serving the right customer with a right product through right channel at right time and at right price, trust of consumers is paramount that can make or break companies. However, Loyalty programs are not realizing full potential, due to account inactivity, low redemption rates, time delays, high transaction; system management and customer acquisition costs, and low client retention (1). Proliferation of blockchain and distributed ledger technology (DLT) in the last few years have provided a novel avenue through virtual currencies to reward consumers. These virtual currencies are analogous to owning stock in a company and sharing benefits of company’s success. This article discusses three choices: Hyperledger Fabric, R3 Corda and Ethereum as platforms to build loyalty programs and outlines pros/cons of each.

Loyalty Program

Ecosystem of loyalty platform with tokenized rewards in the form of loyalty tokens in a blockchain powered loyalty program as its hub and participants as spokes is depicted in the adjacent figure (2).

A high level overview of the loyalty platform design.

Desired Features of Loyalty Platform

From business, consumers and technology perspective, ideal features of the platform are:

Business:

1. On-boarding of B2B Partners: The process should be simple for partners to be part of company’s rewards ecosystem.
2. Omni Channel Experience: Provide an all-encompassing remarkable experience to partners and consumers which is intuitive, relevant, contextual at the moment in time, rich in visualization yet simple to use.
3. Simplicity of usage: Rewards should be easy to “Earn, Spend and Transfer”.
4. “Viral” Effect: With customer as the central focus, the program should lend virality to itself.
5. Tokenization of Loyalty Rewards: This should be a default by design.
6. Low Cost: To build, maintain and operate.

Consumers:

1. Real time: “Earning, Spending and Transfer” of rewards.
2. Multitude of Options: To “Spend and Transfer” accumulated rewards.
3. Transparent, Secure and Fraud Proof.
4. Value of Rewards: A way for consumers to be part of company’s success journey by holding on to rewards, almost like a separate asset class.

Technology:

1. Ease of B2B Partners’ integration.
2. Privacy: B2B partners should not have visibility into consumer activities outside their system. For e.g., Partner A and Partner B should have self contained operating environment but consumers should be able to exchange rewards between A and B.
3. Security, Fraud Proof, Transparent and Immutable Transactions: These are basic tenets of blockchain.
4. Public vs Private Blockchain: This is a function of the type of chosen blockchain platform.
5. Ability to integrate with Crypto Exchanges
6. Availability and Fungibility of built-in Assets offered as rewards.

Comparison

In the following table, each of the business, consumer and technology features are compared.

Due to its complexity, high Total Cost of Ownership (TCO), privacy among partners and lack of any underlying asset that can provide fungibility or built-in asset availability, Hyperledger Fabric does not meet desirable features of the platform.

Between Corda and Ethereum, ethereum being a public blockchain, privacy could be an issue with some B2B/B2C customers. But both platforms provide a solid foundation and desirable features, hence demand a further scrutiny as outlined below.

Corda vs Ethereum

Conclusion

Having considered ideal features of a loyalty rewards platform in general and blockchain in particular, a comparison of three popular blockchain platform reveals various pros/cons of each platform. Business and technology stake holders need to make a conscious effort in choosing the right platform suitable for their business and tech strategy. Corda and Ethereum come close to being ideal platforms to build customer loyalty programs.

References

1. Jeff Berry, “The 2015 COLLOQUY Loyalty Census: BigNumbers, Big Hurdles,” COLLOQUY, February 2015.
2. https://www2.deloitte.com/us/en/pages/financial-services/articles/making-blockchain-real-customer-loyalty-rewards-programs.html