Jumping on the bandwagon

Blockchain Will Transform Customer Loyalty Programs

Loyalty programs have proliferated across travel, retail, financial services, and other economic sectors - ripe for some kind of disruptive innovation that would make them easier to use.

Blockchain may just be the answer.

Blockchain enables a ledger of transactions to be shared across a network of participants.

However, all loyalty programs are vulnerable to a blockchain revolution, but the travel industry is perhaps the most at risk. Travel loyalty programs tend to be complex and multicurrency, making them different from retailers, which typically run simple discount programs, or from banks, which offer cash back or a single currency that can be spent easily across a range of merchants.

Many industries have experienced disruption, due to technologies that successfully reduced inefficiencies and frictions, often disintermediating established players in the process.

Early adopters could benefit considerably:

• Blockchain could help relieve a large balance-sheet liability that many in the industry are facing.
• Blockchain would enable businesses to break out of the loyalty program mold of narrowly defined, one-size-fits-all programs and redemption processes filled with customer hassles.

What shape are blockchain-based loyalty networks likely to take? Initially, each loyalty program might look to develop its own solution, but over time smaller loyalty programs might choose to band together to compete more effectively with larger ones. Ultimately, we expect to see the development of four to six blockchain-based loyalty networks, each anchored by a major airline, a major hotel chain, or a group of smaller travel companies.

For any travel company considering an investment in blockchain, a few rules will be essential:

First, they will want to participate in defining how currency is exchanged between programs — that is, how currency exchange rates are set, and any transferability rules.

Second, they should seek to maintain exclusive control over their data, ensuring that only loyalty points, and not associated customer information, enter the transaction stream.

Third, they should require guarantees that the platform is and will remain unbiased. Otherwise, traditional travel intermediary tools, such as paid search placements and exclusive promotions, could force companies into pay-to-play arrangements to ensure competitors don’t gain an advantage.

Travel companies, such as airlines and hotel chains, recognized too late the power of OTAs to disrupt the industry, and have been paying for that misstep ever since. The nascent state of blockchain for loyalty programs offers an opportunity to realize the value of disruption and shape its future impacts — if travel companies don’t wait too long.

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