From Transaction to Transformation: Blockchain’s Loyalty Proposition

As digital experiences evolve, traditional loyalty programs face significant headwinds. The very concept of loyalty is shifting from simple rewards-based transactions to deeper, personalized relationships. Enter blockchain: a sophisticated, decentralized technology that enables secure digital transactions. Its applications extend far beyond digital assets, presenting brands with an opportunity to reimagine their entire loyalty frameworks. By empowering brands to convert loyalty points into digital assets, blockchain is enabling dynamic, two-way exchanges of value. This modernization promises to foster unprecedented engagement and unlock new revenue streams, revolutionizing how brands build and maintain customer relationships.

• The Blockchain Advantage: Unleashing Loyalty’s Full Potential
• Gen Z and Millennials School Brands on Loyalty
• Blockchain Loyalty at Work: Stronger Engagement in a Unified Ecosystem
• The Blockchain Blueprint for Loyalty Evolution

The Blockchain Advantage: Unleashing Loyalty’s Full Potential

Loyalty 3.0 is where Web3’s smart contracts meet smart business, and blockchain is unlocking new revenue streams. The question is no longer whether blockchain will revolutionize loyalty but who will tap into it first.

From points to profits, blockchain is writing a new loyalty playbook.

$24B

Projected revenue of the loyalty market within the next five years

Blockchain technology has the power to revamp loyalty programs through more flexible and appealing reward structures. One of blockchain’s more compelling features for brands is its smart contracts — automated, self-executing agreements that eliminate the need for intermediaries. This built-in perk streamlines rewards program processes, cutting operational costs and boosting a program’s bottom line.

Additionally, tokenization — converting assets into digital tokens on a blockchain — is already reshaping consumer engagement. Secondary markets for loyalty tokens, where customers can trade, sell or even rent their rewards, incentivize participation in loyalty programs and open fresh revenue pipelines for brands. One early adopter, Yuga Labs, has already earned an estimated $150 million in royalties. With the loyalty industry projected to exceed $24 billion in revenue within five years, blockchain-based loyalty programs represent an opportunity of largely untapped potential.

Loyalty escapes data silos in blockchain-secured ecosystems.

Loyalty programs leveraging blockchain offer unparalleled security compared to traditional, centralized models, fostering greater brand trust with customers. The technology’s real-time tracking and personalization capabilities mitigate fraud risks. Moreover, blockchain’s interoperability enables frictionless and secure loyalty point transfers across an ecosystem of merchants. For example, Singapore Airlines’ KrisPay program, where air miles can be converted into digital tokens spendable at partner merchants, exemplifies this enhanced convenience. Fundamentally, these features help to address long-standing pain points with traditional loyalty programs, enhancing user experiences and satisfaction.

Real-time rewards meet blockchain’s personalization revolution.

While loyalty has long been an asset, blockchain reimagines its potential in ways that foster stronger customer-brand relationships. In particular, smart contracts enable real-time experiential rewards and gamification, adding depth to customer engagement. Visa’s Web3 Loyalty Engagement Solution illustrates this through digital treasure hunts that transform passive point accrual into an interactive brand experience. More compelling and personalized loyalty experiences cultivate deeper connections, which in turn drive higher customer lifetime value and organic brand advocacy.

Gen Z and Millennials School Brands on Loyalty

Generation Z and millennial consumers prize loyalty programs, but most agree that traditional rewards need an overhaul. Blockchain-powered loyalty programs offer an opportunity to invigorate customer relationships within these key demographics.

Young spenders will fuel the next-gen loyalty economy.

More than three-quarters of millennials and 71% of Gen Z consumers say loyalty programs are vital for brand allegiance. However, at 41%, Gen Zers express the highest dissatisfaction with current rewards programs, identifying nontraditional rewards as preferable. In addition, 96% of millennials believe loyalty programs are in need of a refresh with new ways to reward users. Indeed, younger generations are less engaged with conventional loyalty schemes. For example, only 65% of Gen Z and 70% of millennials are enrolled in traditional airline frequent flyer programs, compared to 89% of baby boomers and 80% of Gen X.

71%

of Gen Z consumers say loyalty programs are vital for brand allegiance.

With 22% of millennials and 20% of Gen Z already owning cryptocurrency, these consumer groups are primed to embrace blockchain-based loyalty. As of early 2024, 41% of Gen Z and 55% of millennials expressed interest in learning more about digital assets, hinting at significant potential for growth.

NFTs keep young audiences engaged long after the credits roll.

Blockchain-based non-fungible tokens (NFTs) are a good example of the kinds of newer loyalty channels Gen Z and millennials are seeking, particularly in entertainment, sports and the arts. Gen Z and millennials value unique experiences and exclusive access over traditional rewards, finding backstage passes, VIP access or limited-edition products more appealing than cash back and discounts. Tokenizing exclusive content or merchandise allows brands to grant fans a tangible stake in the content they consume. NFT loyalty programs also align well with the digital-native habits of younger generations, with Gen Z demanding mobile-first loyalty programs that are easy to use.

Ownership of these digital assets is gaining traction among younger consumers, with 9% of Gen Z and 8% of millennials in the United States owning NFTs by late 2023. Companies looking to engage younger audiences should consider incorporating NFT elements and digital experiences into their loyalty programs to better align with these generational preferences.

Blockchain Loyalty at Work: Stronger Engagement in a Unified Ecosystem

Blockchain is actively transforming loyalty into an all-access pass, and brands harnessing this technology are forging connections that stick.

Blockchain loyalty keeps the connection personal as programs scale.

100,000

Number of blockchain-powered digital collectibles country singer Eric Church has gifted to loyal fans

Blockchain technology allows brands to scale loyalty programs globally. While the technology can track transactions worldwide, an even bigger appeal is its ability to unify real-time customer data across all touch points, unlocking novel opportunities for personalization. Coupled with artificial intelligence (AI)-driven analytics, this could lead to predictive rewards programs that even anticipate customer preferences. Although Starbucks’ Odyssey program was discontinued in March, it showcased blockchain’s potential for personalized, experiential rewards. It also underscored an ongoing challenge for brands: designing sustainable blockchain-based loyalty programs. As the technology matures and brands learn from these early efforts, loyalty programs must move away from siloed perks and toward deeply personalized experiences that cement loyalty.

Social currency is real, and blockchain can mint it.

Keeping connections personal is also a frequent struggle for artists looking to appreciate and honor their fan bases as their popularity grows. Unlike traditional static rewards, blockchain-enabled loyalty tokens are able to act as digital proof of brand affiliation, tapping into the desire for community.

Country music star Eric Church’s loyalty program illustrates this potential. Utilizing Solana’s blockchain to issue “Founder’s Bricks,” Church recognizes his most devoted fans with exclusive rewards, including a symbolic stake in his Nashville venue. This strategy harnesses exclusivity to inspire a participatory connection with his brand and, in doing so, foster a sense of belonging. By leveraging blockchain technology in this way, brands can thus transform their most engaged customers into micro-influencers, potentially boosting reach, authenticity and retention in ways traditional programs find hard to achieve.

Blockchain connects the dots in travel’s scattered loyalty landscape.

The travel and hospitality industries, fragmented by nature with multiple players involved in a single customer journey, are ripe for disruption. Blockchain’s potential to unify these disparate players through loyalty ecosystems is deeply compelling — but also challenging. Traditional rewards programs have long struggled to align diverse stakeholders under a common framework. Marriott International, however, discovered a pathway to simplifying its complex, multi-brand loyalty schemes. The hospitality giant has leveraged blockchain to implement a unified, secure loyalty ecosystem that spans the constellation of its hotel portfolio. This system allows customers to earn and redeem rewards seamlessly across different locations and brands.

The Blockchain Blueprint for Customer Engagement

Blockchain is a powerful technology that boasts a suite of capabilities that can modernize loyalty programs. A central challenge for brands lies in overcoming misconceptions and inertia to harness blockchain’s potential. Many brands remain anchored in outdated loyalty models and the legacy architecture that underpins them — points of no return in an era of digital transformation. The urgency to adapt is undeniable, and those who fail to embrace innovation will struggle to drive loyalty in an increasingly digital-first experiential landscape.

PYMNTS Intelligence prescribes the following actionable roadmap for brands modernizing their loyalty programs:

• Audit your brand’s current loyalty program for blockchain readiness. Assess which aspects of your existing loyalty program could benefit from blockchain’s capabilities, including security, transparency and interoperability. Identify critical pain points — such as fraud prevention, customer engagement or data silos — that blockchain can immediately and directly address.
• Design a phased blockchain integration plan. Start with a pilot program — utilizing tokenized rewards or limited-edition NFTs, for example — to gauge customer interest and operational impact. Gradually expand by integrating smart contracts for real-time rewards or cross-brand partnerships, ensuring that each phase aligns with your brand’s broader loyalty strategy.
• Educate and engage your customers in the transition. Communicate clearly the benefits of blockchain-based loyalty to customers. Develop educational content and interactive experiences that help them understand and appreciate the added value of blockchain-powered transparency, security and new rewards possibilities.
• Leverage data for hyper-personalized rewards. Use blockchain’s real-time data capabilities to develop tailored rewards that anticipate customer needs and preferences. Combine this with AI-driven analytics to establish a dynamic loyalty program that adapts to individual behavior, driving customer satisfaction and retention.
• Partner with a blockchain provider to simplify integration. Collaborate with a trusted provider that specializes in blockchain technology for loyalty programs. Ensure that the provider offers the technical infrastructure, scalability and ongoing support needed to seamlessly transition your brand’s traditional loyalty program to a blockchain-based model.

Loyalty is no longer a program: It is an evolving dialogue. Blockchain, too, is not simply a flashy tool but rather the ultimate conversation starter. The future of loyalty speaks digital. Is your brand fluent?

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