March 22, 2018
Some thoughts about loyalty programmes on the Blockchain

Reward schemes seem to be a huge use case for the blockchain technology. However, the definition of a loyalty currency can be wider than you have ever thought about.

You probably have heard about Rakuten, a kind of Japanese rival to Amazon. The company recently announced that it will shift its existing $9 billion loyalty programme onto the blockchain. Basically, it will convert Rakuten Super Points into Rakuten Coins. It will definitely be one of the largest of a growing number of loyalty projects hosted on the blockchain.

The aim of these initiatives seek to reduce the costs and friction of classic loyalty schemes, making them cheaper to run and also more convenient for consumers. In this sense, blockchain enables companies to do regular loyalty more efficient and at the same time it opens the way to entirely new economic models.

Anyone who has ever been handed a loyalty card in a store and discovered it again months later, gathering dust, will already have come to the same conclusion: traditional loyalty schemes don’t work particularly well. As a form of "I owe you" (IOU), redeemable by the company that issued them, there’s an inherent conflict of interests. If you incentivise too much loyalty as a business, you may find it adversely impact you cash flow. There’s a complicated set of sums around loyalty that aims to ensure the right amount and the right form of customer retention. Typically, reward points aren’t transferable, they may expire, and they have all kinds of other conditions attached to them. As a result,  they just don’t offer customers enough value (in other words, they’re often not worth the trouble ).

So what if you had a loyalty currency that was genuinely worth something? A Token that you could send to friends and family, sell on the open market, or spend with any participating store — not just the one that issued it to you? That was the vision behind Incent, which held one of the first token sales back in October and November 2016. Having spent 2017 refining and developing their core software, the project is now launching its flagship app with a Chrome toolbar designed to make it incredibly easy for anyone to get paid crypto rewards. Right now, the company is using the toolbar to refine its approach and ensure its software is robust, before integrating affiliates schemes.

The idea behind Incent is simple: sign up for an affiliates scheme, get people to use the toolbar as they would for their everyday shopping, but instead of keeping all of the revenues, share them with users in the form of Incent, purchased from the open market.) Right now users can download the toolbar and get paid just for browsing, with the affiliates scheme and then partner companies on the way later in 2018.

This presents a totally different economic model to the ‘IOU’ approach of traditional loyalty. It’s one Incent characterises as Open Value, by analogy with Open Source software. Real, ‘Open’ value is value recipients can use as they wish, not around which there are conditions that rob it of its utility and attractiveness.

A broader understanding of ‘loyalty’

Open or Closed, when we think of rewards schemes, these are the programmes we typically imagine are those intended to incentivise customer loyalty and to drive revenues. But the idea is far broader than this. If structured correctly, every blockchain token can be a loyalty programme. They are all designed to incentivise particular behaviours through some form of economic rewards. The only question is how the token model operates — how it aligns incentives between holders, platform owners and customers/users.

In fact, also bitcoin itself can be interpreted as a loyalty currency: it rewards miners for their work of securing the network. Anyways, there are more effective token models that leverage a greater range of stakeholders. Proof-of-stake platforms such as Waves align incentives between miners and holders of the token, unlike bitcoin and other proof-of-work systems. Still greater sophistication is possible: imagine a complex system with a wide range of stakeholders, each of which uses the token in a different way. 

For example, a social network might integrate a token within its platform. For the network, this is a way to crowdfund investment for development and marketing, as well as a tool to engage their customers and end-users. For users, it is an integrated tipping currency and means to pay for apps and upgrades. For businesses such as third-party app developers, it is a way to pay the network for advertising and reward their own users. As demand for the currency increases with the growth of the network and its ecosystem, the value also rises, rewarding initial investors.

Benefits of Blockchain Loyalty Programmes

According to Waves, there are three types of benefits:

General benefits

Benefits for your customers

Benefits for businesses


Opening the way to entirely new economic models

This represents a vibrant and self-contained token economy — one that incentivises all of its many different stakeholders to use and hold the token to enjoy the benefits associated with it, thereby helping to ensure the success of the platform over the long term. In the coming months and years we will likely see more and more ‘loyalty’ initiatives like this, which really function as kind of private currencies for their own dedicated use cases.