Blockchain loyalty program guide - with Cezary Olejarczyk

As we stand on the brink of what many call the blockchain revolution, many in the loyalty world wonder what that means for the future of loyalty rewards programs. Many loyalty providers decide to jump headfirst into trying to reap all blockchain has to offer, while other companies choose to tread lightly.

In our latest interview, we speak to none other than our CEO, Cezary Olejarczyk, who tells us about all things blockchain, including the value it can add, some of its most crucial use cases, Open Loyalty's own blockchain undertakings, and lots more.

What trends are you noticing with regard to blockchain and loyalty?

Loyalty firms and brands running loyalty programs alike are increasingly being taken with blockchain. Along with technological adoption across the whole market, blockchain is becoming better understood and is starting to leave its mark on the loyalty industry.

What’s more, the market is seeing an influx of younger generations of consumers for whom the use of technology is something akin to second nature. These generations often already come braced with experience of blockchain in some form, whether it be cryptocurrencies or NFTs (non fungible tokens).

As such, loyalty firms seeking to benefit from this trend are trying out early blockchain adoptions within their businesses, though not always utilizing the power of technology itself, merely the trends and popularity surrounding it. This isn’t unusual and similar practices were observed across other industries before finding genuine problem-solving applications offered by this technology. We can expect the loyalty industry to follow suit; what’s needed, however, is time, investment, and experimentation.

How can blockchain add value to loyalty programs?

Providing loyalty program members with value is always the most important factor to consider. In order to understand what kind of value we can expect the adoption of blockchain technology to deliver, we need to understand the latter’s strengths and weaknesses.

One of the main aspects of blockchain is its steadfast security and transparency offered to consumers conducting transactions online. This is extremely valuable to blockchain loyalty programs, where different types of prizes are often equivalent to tens of millions of dollars in company books.

Another valuable factor of blockchain technology is the increased flexibility and ease regarding reporting and audits. The novel technology enables the automatization of these typically mundane and time-consuming, though crucial, elements of traditional loyalty programs. To reduce system management costs is no easy feat, but one that blockchain makes more than possible.

Most crucially, however, blockchain is the digitization of rewards and the possibility of their transfers - between program members, but also with the added benefit of exchanging them across different loyalty programs. This freedom and flexibility are the bedrock of today’s global economy, and it's how loyal customers are made.

Open Loyalty's Loyalty Blockchain API project on GitHub is a prime example of how blockchain can add value to loyalty programs. The API provides features such as user base management, smart contract transaction submission, asset management, and network management. It also offers managed security levels for transaction submission. The project uses HyperLedger Fabric, a proprietary solution that allows for precise management of trusted parties within the network and data sharing.

What are some of its key use cases in a loyalty program?

There are, of course, many use cases of blockchain-based solutions in loyalty, but some of the most important ones are definitely:

Digital assets - every reward is a digital record on the blockchain ledger assigned to a specific wallet owner. The owner has extensive flexibility regarding how to utilize their assets.
Exchange - every user has the freedom to exchange their assets with other users. With their goods at their disposal, wallet owners get a sense of a greater value of their rewards as well as belonging to a certain community.
Next-gen coalition programs - automatically formed coalition programs can be occasional such as Black Friday, Christmas, or other designated campaigns. It’s a totally novel and more flexible approach to establishing coalition loyalty programs, which goes beyond earning and using digital assets as part of the coalition program. It also allows program users the possibility of exchange, functioning similarly to a marketplace.
Accountability, reporting, audits - smart contracts stored on a blockchain help automate settling coalition program accounts, joint campaigns, or even campaigns uploaded to a decentralized network. Instead of configuring the conditions of a loyalty program’s given campaign, you can upload smart contracts to the network, which simultaneously looks after business conditions and generates the required reports (liability reports).
Security - nothing ever gets lost on a blockchain network, which is completely transparent; making every single transaction and its record easily traceable. Security is guaranteed thanks to cryptography, a distributed and decentralized network, as well as the signing of subsequent blocks. This is very different from solutions used thus far, such as RDBMS and NoSQL databases.

The Loyalty Blockchain API project we have recently published on GitHub provides a practical implementation of these use cases. It allows for the creation and management of users within the Fabric network, facilitates the submission of transactions to various smart contracts, and provides a diverse range of assets for different use cases, including vouchers, gift cards, prepaid cards, and utility tokens.

How do blockchain-based loyalty solutions work?

At Open Loyalty, we’ve experimented with various blockchain models and networks. Each of them had their strengths and weaknesses. It was often hard to compare them and deem one blockchain network better than the other. It’s just different. It all depends on the business context. In our case, it’s all about fulfilling our vision:

“To make all your loyalty benefits accessible everywhere, anytime”

What does that mean? In short, storing a loyalty program’s all digital assets on a blockchain network, thus making them easy to exchange and trade.

Once you establish your business background, finding solutions best suited to your needs becomes considerably easier. For us, IBM HyperLedger Fabric and the private ledger approach turned out to be most fitting.

Let’s start from the beginning. Why HyperLedger? For starters, it’s an open-source solution, which is also supported by the Linux Foundation. Both of these factors offer a considerable guarantee of project development, while at the same time offering a great deal of flexibility in customizing it to our unique needs. Secondly, HyperLedger Fabric was built with enterprise application development in mind. This is a huge advantage, particularly when you operate in the B2B market and target Enterprise Clients.

Another pertinent factor in our choice was the possibility of creating multiple blockchains to be divided across organizations. This aspect fits in well within the context of many separate loyalty programs of individual businesses and brands. It ensures a safe level of separation of confidential data inevitably collected by loyalty programs.

After all, one of the disadvantages of coalition loyalty programs is the need to share data about clients with others or surrender control over the information (i.e. PayBack). Given that data is so key nowadays, undoubtedly one of the most valuable assets out there, the above is simply unacceptable both from the perspective of the consumer and the business itself.

The careful handling of customer data is further complemented by smart contracts, enabling dynamic contract creation between companies, which allow for seamless asset exchange between loyalty programs, or even acceptance of a coupon from company A by company B.

The question remains why we’ve decided to go with a private ledger. Again, security took precedence in our choice, as well as cost and speed. These aspects are all intertwined. Very often, in public blockchain networks, Proof-of-Work is often utilized, which demands huge amounts of computing power and time, and by extension, a lot of energy. The cost of adding a block and, in this case, storing loyalty assets could end up being too high.

Our portfolio of clients is made of huge companies. For them, launching a loyalty program is designed to achieve a set of concrete business goals. A public blockchain, even one that uses Proof-of-Stake, still remains vulnerable to threat, and companies don’t want to jeopardize their long-standing reputations. Building loyalty rewards programs for these companies needs to come with a safety assurance, which Proof-of-Stake is unable to offer.

Of course, it would be a lot more PR-friendly to launch a platform on an open blockchain. Doing so has many advantages, as such a system could be integrated with existing marketplace platforms. However, we decided to take a different path. In its current version, Open Loyalty has full control over who and to what degree has access to the data we store.

In the case of Enterprise Clients and renowned brands, security, confidentiality, and trust are key. It’s for this reason that we decided to go with the private ledger approach, which requires far less time to add blocks and energy to run, in addition to being more scalable. In this specific business case, the drawbacks of this approach are resolved on other planes, such as signing contracts between businesses.

Currently, Open Loyalty is integrated with a test blockchain network. Said network allows for the creation of a separate company and other dedicated blockchains. Within each of them is stored one type of digital asset: rewards points. Additionally, thanks to smart contracts, it is possible to create agreements between various business entities to allow for exchanging points according to business rules such as contract value, duration, or conversion rate.

What’s more, smart contracts are responsible for preparing liability reports for companies in order to facilitate easy and fast settling of accounts between said entities. In the future, we plan to add the remaining digital assets to our blockchain network, e.g. coupons, vouchers, prepaid cards, badges, achievements, NFTs, and so on.

What are some good examples of loyalty providers utilizing blockchain technology successfully?

Some great ones to check out or read about are:

Qiibee
Starbucks
FCM Travel article about other airlines experimenting with blockchain technology‍
Another great blog article about companies across many economic sectors giving blockchain a go

How can blockchain revolutionize the loyalty industry?

In short - as a very light and non-invasive common base layer, it can (but doesn’t have to!) facilitate the reintegration of divided loyalty systems into one that works both for the clients (through discounts) and businesses (through attracting new customers and retaining existing ones).

More about that below.

How do you see the future of blockchain in the loyalty world?

I believe that blockchain will make possible the consolidation of the fragmented loyalty ecosystem. This will in turn allow us to obtain previously impossible free flow and exchange of rewards between members of various loyalty programs. For example, imagine that you receive a reward in the form of a $10 coupon to be spent at a given retailer within 30 days. In many cases, the coupon will go to waste.

Companies analyzing the impact of customer loyalty programs on the bottom line identified the above as a serious problem. An unspent $10 coupon may seem like a $10 “win” for the business, but actually, it merely points to a frustrated, unengaged customer who is having a poor customer experience. In this case, the customer is likely to take their business elsewhere, to a retailer where coupon redemption options are made easier.

Now, picture a different scenario. A customer receives a $10 coupon they can now freely swap with another user, creating a win-win situation for both. Most importantly, the brands themselves benefit. Their rate of unsatisfied customers is much decreased and customer retention goes up. Potentially all thanks to the right coupon, and a practically frictionless customer experience.

Taking this a step further, blockchain can also make using digital goods considerably easier. When paying in store using the mobile app, customers can pay for their shopping partly using their reward points and another payment method of their choice. Lowering the entry threshold and making use easy is key to increased rewards program adoption.

Blockchain, as a secure solution, lends itself well to these types of applications than other existing solutions. Will there be a single dominant network, or many different ones offering the possibility of digital asset exchange between them? It’s hard to say. I believe, however, that blockchain will connect the, currently unnaturally disconnected, loyalty world.

Play around with our open source Loyalty Blockchain API

We invite developers to test our blockchain solution for free or integrate it with existing loyalty programs. Our open-source Loyalty Blockchain API project on GitHub is designed to manage the Hyperledger Fabric network and smart contracts. It's written in Node.js and JavaScript and is aimed at enterprises exploring blockchain technology in the context of customer loyalty programs.

The API provides features such as userbase management, smart contract transaction submission, asset management, and network management. It also offers managed security levels for transaction submission. The project uses HyperLedger Fabric, a proprietary solution that allows for precise management of trusted parties within the network and data sharing.

We encourage you to explore the project, play around with the code, and see how blockchain can revolutionize loyalty program in your company. Visit our Loyalty Blockchain API on GitHub.