Investment news: Engage People, Inc. a provider for the loyalty and incentive industry, has received a significant investment from Lovell Minnick Partners, a private equity firm specializing in financial and related business services companies. The investment will support plans for growth at Engage, which will continue to be majority owned and operated by the current management team. Terms of the private investment were not disclosed.
By Mike Capizzi
Engage is a new era provider of loyalty marketing and incentive services who is well poised for continued growth in the next 1 – 3 years. The firm is one of many privately held entities competing in the North American loyalty space with new age offerings but appears to carry specific competitive advantages with respect to the rewards redemption marketplace. The general loyalty marketplace continues to experience double-digit, year over year growth, offering Engage upside in terms of overall category expansion. Membership growth also has a direct impact on redemption growth, although it is not proportional to the “non-core” redemption options favored by Engage. Additionally, market share gains are also possible, further accelerating near-term growth prospects. Both scenarios are possible given Engage’s proprietary technology solutions, especially LRG.
LRG is a new age, almost frictionless technology platform that has taken a payments market approach to the age old problem of non-core redemptions (redemptions for goods or services not provided by the loyalty program sponsor). While non-core redemptions may only represent 20% of all loyalty program redemptions, the marketplace for unused miles/points is over $16 billion (accrued) in the US alone according to research in 2015. Based on Web Flyer research the frequent flyer marketplace alone is reported to have 23.8 million unredeemed miles in circulation. The unrealized potential based on a superior redemption platform like LRG is extremely viable.
The sponsors of these programs have to fund or set aside reserve liability in order to accommodate all miles and points earned (within certain GAAP or policy guidelines). As the liability mounts, the sponsors seek ways to mitigate the increases. Non-core redemption growth is thus favorable to the sponsors, especially when it can be delivered at a lower cost per point or per member than the traditional in-kind redemptions of airline tickets or hotel rooms. For the credit card sector, all points/miles (non cash back) programs are non-core, although airline travel is still the most prevalent reward in many card programs. This trend of shifting a higher percentage of redemptions to non-core will continue and presents a favorable landscape for LRG.
Merchants view the unused miles/points bank as potential spending for their brands. They continually seek ways to tap into this spending potential without the hassles of direct integration with each loyalty program. LRG provides that opportunity by using the existing payments infrastructure as the facilitating methodology. No work for the merchants means greater merchant acceptance and the possibility the merchants will offer a commission rate back to LRG that is above normal. It may also be viewed by some merchants as a response to Amazon trying to take a significant share of the unused liability funds. Merchants also lament about interchange fees and LRG offers the ability to place the redemption order as either a normal, credit card e-commerce transaction or a gift card transaction. Favorability to both LRG and merchant are noted.
Backed by the considerable expertise and resources of Lovell Minnick, especially in the payments space, Engage is someone everyone should have on their radar screen.
Mike Capizzi is Dean of the Loyalty Academy.
