Cyptocurrency directory and merchant hub BitScan has partnered with custom blockchain token platform Waves to create a new merchant-funded loyalty network that will leverage a public blockchain to create a virtual rewards currency that eliminates both the cost of implementing a merchant loyalty programme and the liability associated with issuing promotional currency. If the plan comes to fruition, the companies involve promise no less than the complete disruption the global loyalty industry. Should traditional loyalty providers be concerned?
The network, called Incent, plans a crowdsourced round of funding to begin on October 1. Here's how the Incent loyalty platform will work, courtesy of digital currency publication Brave New Coin:
"The [Incent] system is built around a universal loyalty token, which is designed to increase in value with adoption. The token is both spendable cash and an attractive investment to hold in the medium-to-long term.
Essentially, the Incent loyalty platform allows merchants and retailers to launch customized loyalty programmes with no additional costs or resources. As an open blockchain solution, Incent handles the distribution, storage, exchange, and creation of tokens and loyalty systems. Incent tokens give consumers the freedom to decide whether to spend them with the original retailer, other retailers using the system, or sell them an exchange for cash or other digital currencies."
BitScan, which is developing Incent on the Wave platform, will leverage a network of over 9,000 bitcoin-accepting merchants, and will help keep the market for tokens liquid. If the system works, the Incent Loyalty network will allow consumers to earn rewards transportable between participating brands. Those rewards would have an independent value outside of the issuing merchant; the system allows merchants to choose their level of reward, then pools those rewards with rewards across the network to eliminate the contingent liability and tax burdens associated with traditional loyalty programmess.
If you're still a bit confused, here's how Inent describes the system on their web site:
"BitScan proposes a paradigm shift in the loyalty sector. By creating a new form of loyalty token, hosted on the blockchain, rewards will be fully transferable with no limitations. They can be traded on secondary markets, and redeemed by businesses within the participating network. BitScan will buy and issue these tokens directly to consumers as directed by participating businesses via a technical integration at the point-of-sale. Merchants will configure what percentage of each transaction will be returned to the customer as Incent - effectively a form of cashback.
"This money will be sent to BitScan, who will buy the equivalent amount of Incent at the prevailing market rate and send it to the customer's digital wallet. Similarly, merchants can set the discount for purchases in Incent, encouraging holders of Incent to spend their tokens at their stores. Once again, BitScan will act as primary broker, processing a consumer's order by selling the Incent component of it back into the market before settling with the merchant in local tender. This process immediately results in further demand for Incent, to the value set by the merchant. The existence of secondary markets ensures a fair and independent price for Incent on an enduring basis."
In essence, Incent intends the creation of a virtual merchant-funded coalition programme powered by cash-back rewards. The potentially disruptive element is the presence of a secondary market for rewards; should the system reach critical mass, consumers could theoretically hold their rewards as an investment and then sell them on the open market. BitScan promises that this rewards market will be stable and liquid, thereby increasing the value of the currency for all involved.
Of course, the flaw in this whole system is a fundamental misunderstanding of the nature and purpose of loyalty programmes. The reason why promotional currency-based programmes tend to perform better than cash-back programmes over time is that earning equity toward a future redemption episode motivates consumers to change behavior- to visit more often and to spend more at each visit. Issuing cash-back rewards with fungability outside the reward programme further eliminates opportunity for consumers to earn aspirational rewards, or for those redemptions to drive in-store visits via in-kind redemption options.
Absent opportunities for merchants to leverage their rewards investment to change behavior, the Incent system would mostly subsidize existing behavior. A consumer active in the programme may choose to consolidate spend within the network in order to earn more Incent currency - an effect we typically see in traditional coalition loyalty programmes. But absent the ability to build in perceived value and emotional connection through the cycle of earning and redemption, there is minimal opportunity in this model to motivate incremental spend. Merchants are in essence funding rewards with little ability to grow relationship value.
So we'll see how disruptive the Incent system actually becomes. Incent currently exists only on paper; following the crowdsale on October 1, the company plans to seek out developers to help it build the technology infrastructure and point-of-sale integration systems. Stay tuned.