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PCM Feature: Loyalty goes digital

Credit card reward schemes have been in the doldrums for years. With “alt pays” such as account-to-account payments and crypto slowly replacing cards, we ask what’s happening to reward schemes, and what loyalty looks like in the digital era.

The old model has gone. Time was, banks and credit card companies would incentivise customers to spend with the promise of points that translated into luxury purchases such as watches, household goods or computer games.

As long ago as 2019, the Financial Times reported the profitability of US credit card programmes had dropped by a quarter thanks to the cost of such “reward point” schemes and the expense of acquiring new customers.

As with so many other areas of life, the pandemic has been a force for change. Most obviously, reward schemes offering cheap travel such as Air Miles are, according to one leading industry figure, “dead … it’s more about one-to-one partnerships between organisations these days.”

Some banks such as Halifax Bank of Scotland have broadly withdrawn from card loyalty schemes given their cost.

That’s not to say loyalty programmes are dying. In fact, 2022 research from technology infrastructure provider claims 84 percent of customers are more willing to choose a retailer that runs a loyalty program, and customers who are loyalty programme members generate between 12 and 18 percent more revenue per year, with loyalty programmes producing 3.5 times more transactions per member than casual shoppers.

New schemes for a new era

If the concept of loyalty schemes is no less relevant today, then they certainly look and feel different. Len Covello, Chief Techology Officer at loyalty specialists Engage, says personalising loyalty programmes is key to success: “It’s all about using consumers’ purchasing data to work out what is relevant to them.

During the pandemic, travel was not on the menu, so consumers started to look at high-value consumer items and using points to reduce the cost of goods at checkout. In that sense, loyalty programmes proved their worth for companies looking to maintain turnover and profit.”

For Covello, flexibility is a key feature of a modern loyalty programme. “As consumers accrue loyalty benefits, they might look to redeem these with the issuing organisation – or redeem them in the form of gift cards from a partner organisation. The key point is engaging and retaining the consumer and delivering value.”

“Loyalty models have moved online, and focus on personalisation and consumer relevance.”

It seems the wider payments business is in agreement, with the capacity to predict consumers’ needs ranked joint second in importance by respondents to the Loyalty Trends Survey 2021-22, a survey run by Open Loyalty.

Most of the other top trends in this report – rewards in a mobile environment, Big Data, and gamification, or game-based mechanics – speak to the extent to which loyalty models have now moved online, and are focused on personalisation and relevance for the individual customer.

Perhaps the most telling trend evinced by Open Loyalty’s survey, however, is the move towards rewarding paid memberships and subscriptions. From a company point of view, loyalty is no longer just about encouraging spending.

It’s about encouraging the right kind of spending in the right channels, and it’s powered by AI and Machine Learning solutions that look to influence consumer behaviour while delivering rewards relevant to a consumer’s individual interests.

As Tom Madden, Managing Partner at brand consultancy ICF puts it: “brands are looking to encourage subscription offerings to make up for revenue lost during the pandemic. Many brands will be looking to redesign their loyalty programmes to attract new types of customers with a better understanding of their behaviour.”

As well as incentivising certain kinds of spend, loyalty programmes will also be looking to encourage consumers to part with more of their data. Look for brands that reward consumers for spending time (as well as money) on their websites, having permissioned the company to use their data.

An extension of the now well-established model of treating customer data as a product in itself, receiving browsing data also helps companies to learn more about what an individual consumer wants.

At the same time, loyalty is now going online through digital wallets. Mikael Lijtenstein, CEO of AstroPay, says digital wallets are a great medium for loyalty schemes: “Digital wallets offer so much scope for additional services for customers including loyalty programs and personalisation.

It is an excellent way of spurring consumers into action as the platform is already built for ease and convenience.”

Blockchain: removing confusion from reward

If the pandemic has confirmed and accelerated a shift online for loyalty schemes, then the next step is the incorporation of blockchain technologies in the reward landscape. According to a new report from Oliver Wyman, the average US household participates in some 29 different loyalty programmes, with 6.7 trillion points worth US$51 billion issued each year.

Blockchain has the power to revolutionise the loyalty sector by making it much easier to spend points earned in one scheme in a different environment. Oliver Wyman say this could work by tokenizing points earned in each loyalty scheme and accruing them in a central environment to be spent elsewhere.

To some extent, this trend is already happening inside retail groups and between organisations with a natural fit – for instance, grocery stores and home improvement chains – but without a blockchain element.

Blockchain’s added dimension, in this case, is to make aggregating points and bringing new partners onboard faster and simpler thanks to the permanent record, or “chain” created with each loyalty transaction.

The crypto dimension

If the spending-for-points model is not quite dead, but perhaps expanded, then there’s one area in which spend-for-points is growing in popularity: cryptocurrencies, and in particular Bitcoin and Ethereum.

As these coins have grown in value, some consumers have despaired of ever owning “a bitcoin” (current value approx $45,000 per coin), and have taken to investing in funds or fractional ownership of a few Satoshis (1000ths of a bitcoin).

However, help is at hand for the budding cryptocurrency investor in the shape of credit card schemes that offer bitcoin ownership as a reward.

In 2021, cryptocurrency exchanges BlockFi and Gemini announced they would launch credit cards offering bitcoin rewards. Major consumer brands are also getting into the cryptocurrency rewards world, with Shake Shack offering rewards in bitcoin for those who use their Cash App to buy food.

Even airlines are experimenting with cryptocurrency as a loyalty reward. Northern Pacific Airlines rewards frequent flyers with its flyCoin token, which can be used to purchase free flights and airline elite status.

Northern Pacific also offers the option to convert its FlyCoins to Bitcoin and other cryptocurrencies. Most recently, US restaurant operator Landry’s —including well-known chains like the Bubba Gump Shrimp Co. and Rainforest Café – joined forces with NYDIG, a leading bitcoin company to allow members of Landry’s Select Club to earn bitcoin as points in its restaurants.

Customers can receive points that track the value of bitcoin and can be redeemed in $25 reward increments based on the market price of bitcoin.

It’s said that change is the only certainty in life, and the loyalty sector is witnessing more change than most, even given the pandemic and conflict in Europe.

One other certainty we can rely on, however, is that – whether it’s online or in the physical world – loyalty schemes will continue to be closely linked to payments and the exchange of value, be that value expressed as data, cryptocurrencies or quite simply the kinds of consumer behaviour a brand is looking to encourage.


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