How Tech Is Remaking Rewards

From back offices to the point of sale, and from digital wallets to the blockchain, fintechs are fomenting a revolution in loyalty and rewards. Here’s how that’s playing out—and where it’s heading.

By Maria Arminio and Bo Berg

Bank and merchant card issuers are looking for ways to distinguish their rewards programs from others. The motivation is straightforward. The best rewards programs drive more sales, increase market share, and sustain growth through customer stickiness.

In distinguishing rewards programs one from one another, the architects of these programs tout the merits of point-based vs. cash-back programs and social media vs. tiers. But much of the real innovation in reward programs is dependent upon the enabling technology that serves as the backbone for delivering a compelling consumer experience.

This article is not about the types of rewards programs that are best for your customers. Rather, it’s about how to build the underlying infrastructure, tools, and technologies that enable your rewards programs to flourish.

Perhaps not surprisingly, fintech companies are proffering some of the most creative and innovative solutions to enable consumers to acquire, aggregate, and redeem rewards across multiple channels.

Five Examples

What are the most common challenges with rewards programs?

– Creating a compelling, en-riched user experience that is personalized, easy to use, customer-parameterized, and inextricably tied to the payment component.

– Accumulating and tracking points from multiple sources (e.g., alliance partners) and translating, redeeming, or converting points for purchase of goods and services.

– Supporting the program seamlessly across multiple distribution channels, whether at the digital wallet or point of purchase.

– Protecting the safety and security of sensitive information from fraudsters.

Some of the most interesting and ground-breaking ideas for addressing these challenges have come from the fintech world. In its latest “Quarterly FinTech Insights and Annual Almanac,” FT Partners identifies fintech companies in the payments sector as one of the fastest-growing industry segments.

Fintech companies bring a new foundation of technology that is changing the point-of-purchase experience, resulting in enriched rewards programs. Following are five examples of very exciting loyalty programs and their enabling technology:

Those of you that watched the NBA Finals may have noticed the Rakuten logo on the Warriors’ basketball jerseys. Rakuten is a heavily funded fintech company that has developed a competitive loyalty program with the ability to accumulate points and get cash back on purchases.

Points can be used on any Rakuten-sponsored merchandise, incentivized with daily deals and personalized offers. Blockchain technology supports its proprietary, borderless cryptocurrency, called Rakuten Coin.

Next, Poynt represents one of the best examples of an integrated payments and loyalty program. This fintech company has reimagined the payment terminal by bundling hardware, software, and business applications into a compelling customer experience.

This smart terminal is built on top of an open operating system and runs third-party applications. A single card reader identifies the customer, facilitates the purchase, and applies rewards. The merchant benefits, too, because the Poynt device integrates with legacy ECR systems and other peripherals. Very slick!

Gabro has developed a flight-rewards redemption program that enables the use of rewards points across multiple participating partners in complementary industries. Gabro’s digital wallet conveniently converts customers’ unused loyalty points to cryptocurrency to allow for the instant redemption of points and discount coupons for items like airline tickets and hotel rooms. Gabro uses blockchain technology for the movement and redemption of cryptocurrency in the form of rewards.

KrisPay has developed a unique way to convert rewards points via a digital wallet, enabling easy redemption of frequent-flier points. The KrisPay digital wallet converts frequent-flier miles into instant purchases on the mobile phone and works cooperatively with participating partners.

Another industry disruptor is qiibee. Its wallet provides improved tracking and use of loyalty and rewards points by giving customers the ability to exchange loyalty tokens and to redeem them for rewards. Loyalty tokens can also be sold for fiat or cryptocurrency.

Points in Common

From an infrastructure perspective, these innovative rewards programs have some baseline commonality.

First, they all stress an enhanced user experience. All payment-distribution channels—ATMs, point of sale, online, and mobile—are heavily focused on ease of use and personalization, so an omnichannel approach with consistent look and feel becomes an imperative. Rewards programs are easy to use, anticipate consumer demand, and operate in real time, thereby meeting the customer’s need for instant gratification.

The user experience operates at the digital wallet, where the value proposition is further enhanced through daily deals and special offers for registered members. But it also extends to the POS by supporting new third-party applications.

Next, they all require a paradigm shift for accessing and processing data. Aggregation tools and technology are fundamental for compiling data on rewards customers, understanding their shopping behavior, and providing advice.

Aggregators are disrupting the traditional way merchants and banks navigate access to data and are introducing new rules of engagement. Financial institutions are signing multilateral agreements with multiple data aggregators and developing unique ways to share the data. Rules-based engines help to make recommendations on offers based on user type and target purchases to identify and award points.

Financial institutions are also working with fintech companies to create customer-centric solutions. Application programming interfaces (APIs) play an essential role in accessing data at multiple sources in multiple repositories, so that reward programs can be personalized and customized. Modular APIs are the building blocks upon which special offers are designed.

Data analytics providers are adding more state-of-the-art technology to make information even richer. New analytical tools are supporting analysis of shopping habits at the individual customer level.

Tel Aviv-based Personetics is a fintech software company that uses artificial intelligence to analyze customer-transaction data in real time. It then uses this analysis to deliver personalized financial-management information. Another fintech company, Tableau, produces interactive data visualization.

As noted earlier, fintechs are using blockchain technology for points/currency conversion. A blockchain-based distributed computing platform and operating system (like Ethereum) supports a trustless, secure, and proven mechanism to issue loyalty tokens and to convert tokens and/or cryptocurrency to local currency.

Blockchain also provides a new way of structuring information so it can be shared across multiple verticals. This permission-based and secure technology improves efficiency when dealing with multiple parties by defining the rules of engagement for data sharing among themselves.

Another point in common among these fintechs is that they all use tokenization for added security as well as a medium for exchange. The fungibility of rewards points is key. Rewards customers want to send and receive loyalty tokens with their friends, so the tokens must be able to be redeemed like cash.

The payments industry is moving in the direction of tokenizing encrypted data at rest and in transit and are doing this with cloud-based vaultless solutions that render transaction activity out of scope for PCI compliance. Tokenization is also being used to monetize spending conversions from points to fiat and/or local currencies.

Companies like Magensa, a MagTek subsidiary, are building these types of tokenization-security solutions that keep both payment and rewards data from being compromised.

All the fintech rewards programs require seamless integration across multiple channels. Rewards programs may be emerging more rapidly in the digital channel where loyalty-application vendors are fighting for space on the digital wallet. But consumers also want to be able to redeem rewards at the point of purchase.

Closer to Payments

So POS providers are developing solutions that seamlessly integrate legacy hardware and third-party applications, enabling the reward programs to get closer to the payments process. APIs are helping to bridge the gap by enabling legacy applications to interact and send data from multiple sources.

Fintech companies are ushering in a new way of constructing rewards programs, filling the gaps created by legacy infrastructure. They bring business and technological innovation that transforms traditional rewards programs into ones that are highly customized and personalized.

Additionally, fintech-like capabilities are emerging from specialty players in digital wallets, aggregation, tokenization, cryptocurrency, APIs, data analytics, rules-based engines, and cloud-based infrastructure. The net result is rewards programs that are easier to use, achieve faster adoption, have broader reach, and support redemption at any distribution channel in the physical or online space.