How Bitcoin Technology Could Shake Up the Loyalty-Points Business
Paul Vigna and Michael J. Casey.
When the BitLicense came out last month and many bitcoin startups moaned about the innovation-killing new compliance burdens from New York’s Department of Financial Services, the team at Ribbit.me celebrated.
Retail rewards points – frequently flyer miles, hotel loyalty points, return-customer retailer programs and so forth – that make use of cryptocurrencies or their underlying blockchain technology were exempted from the regulations. For Ribbit.me, whose RibbitRewards are tradeable, blockchain-based loyalty tokens, that was good news.
But even if regulators ignore “crypto-reward” tokens, accountants could have a hard time with them. That’s because, under one Ribbit.me model, founders Sean Dennis and Greg Simon claim to effectively make disappear the loyalty program liabilities that merchants have traditionally had to carry to recognize their future obligation to deliver goods and services against those points.
With a viewpoint that upends the centuries-old principles of double-entry bookkeeping, Messrs. Dennis and Simon argue that if reward points are generated by an algorithm and issued in the form of a digital token on the blockchain, it creates an asset for the individual holder but the countervailing liability resides with the entire blockchain itself.
That means “there’s no liability on merchants’ balance sheets anymore…and that’s what’s huge,” says Mr. Dennis. “We can take millions of dollars in liabilities off their balance sheets.”
As Mr. Simon concedes, this kind of thing could blow a bookkeeper’s mind. “We tell them the liability disappears, because the blockchain belongs to no one,” he says.
Setting aside this head-scratching disappearing trick – and the question of how regulators might one day deal with it – the idea of blockchain-based reward points is stirring the imagination among retail business managers. A system in which reward points are issued as immediately tradable digital tokens on the universally verifiable and transparent blockchain ledger creates “far less friction” for merchants, says Mr. Dennis.
In part, that’s because even if accountants eventually find creative ways for merchants to quantify their liabilities, blockchain solutions could create better methods for managing those obligations.
That’s especially so for franchisees in industries such as hospitality, where hotels operate under one branded chain but different owners, says Eric Piscini , a banking technology consultant at Deloitte in Atlanta. Because the blockchain “is a public protocol [with crypto-rewards] you would know at any time what the liability is for the owner and what it is for the hotel chain,” he says.
Mr. Piscini, who heads up a worldwide team of 90 Deloitte staffers studying cryptocurrency solutions for the firm’s clients, sees the blockchain potentially leapfrogging the loyalty points industry out of the same, outdated technology it has used ever since the concept began 20 years ago.
Another advantage, according to Mr. Piscini: “the real-time aspect of the blockchain.” Right now, “if I go to a hotel and check in, stay a few nights, and then check out, I get my points a day or two later… On the blockchain you get those points in real time, which means I could use them in the hotel. It would incentivize me to use those points at the location. That’s good for the merchant and good for the brand.”
The Ribbit.me founders also tout the benefits of buying and selling these tokens openly.
In cases where the points trade on the blockchain and are recognized solely against a single, independently owned merchant, the retailer can buy up points on the open market – possibly at a discount to their redeemable value, which doesn’t change for the customer – and reduce future debts. Alternatively, the merchant can sell tokens for cash if their value exceeds their redeemable value, thus quickly monetizing heightened demand for their products.
In fact, says Ribbit.me’s Mr. Simon, the transparently quoted floating token price could function as an ongoing measure of a firm’s reputation, something to respond to with marketing or service changes. “Instead of paying millions of dollars to consultants to tell you what your brand is worth, you could just look at what the consumer valuation is on the markets,” he says.
Naturally, the Ribbit.me founders also cite advantages for customers. For example, someone who really wants to buy a power drill but has insufficient amount of the desired hardware store’s tokens can trade, say, tokens from a pharmacy and a hotel for more of the hardware store points. For the merchants, Mr. Dennis says, this cultivates a closer relationship with their most sought-after, loyal customers.
Ribbit.me is far from the only innovator working on bitcoin-inspired rewards programs. The blogging and video site bitLanders has just launched a “bitMiles” concept where visitors to its site are rewarded in bitcoin-based points for performing various tasks. The underlying amounts of bitcoin are then divided among the user and various charities sponsored by bitLanders.
“Thanks to bitMiles, time on the site grew from two to 16 minutes per session,” says bitLanders CEO Francesco Rulli.
There seem to be many creative solutions for crypto-rewards. Who knows what it might spawn in terms of creative accounting. (Michael Casey)
-The Washington-based Digital Chamber of Commerce gained a bit of advisory clout this week.
The Chamber, which is headed by Perianne Boring, announced that it had added the following names to its board of advisors: Blythe Masters, the former J.P. Morgan Chase & Co. executive who as CEO of Digital Asset Holdings is stirring much speculation around the prospect of blockchain-based securities settlement; James Robinson, a prominent venture capitalist who is co-founder and managing partner of RRE Ventures; and Jason Weinstein, a former head of the criminal division at the Department of Justice and current partner at law firm Steptoe & Johnson LLP who already functions as an adviser to bitcoin mining firm BitFury.
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