Securities exchange to offer loyalty-backed securities

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By: RickFerguson |

Posted on February 10, 2017

Loyalty-backed securitiesIn another sign that loyalty marketing has hit the big time, a New York-based securities exchange plans to offer loyalty points-back securities to institutional investors. That's right - investors will now be able to trade loyalty points on the open market. If the securities take off, the additional value brought into the market has the potential to explode the loyalty industry - taking a market estimated at $350 million in 2015 to more than $1 trillion. Excited yet?
By Rick Ferguson
The point-backed securities will be offered by Affinity Capital Exchange, and are designed to allow "institutional investors to gain exposure to the points market while expanding the market for issuers and their partners," accoording to ACE Chief Executive Officer Atanas Christov, quoted by Reuters.
ACE estimates the current market for loyalty points at somewhere around $350 million, and expects the market to grow to $500 million by 2019. ACE is the latest of a growing number of financial companies investing in the loyaly space. Money quote from Reuters:

"Private equity firms and hedge funds have also been getting into the points business to help diversify their portfolios. But to do so they generally have to buy stakes in loyalty program companies. For instance, in July 2015, buyout firm Advent International bought a 30 percent stake in a subsidiary of Avianca Holdings for nearly $350 million."

Here's how ACE describes the function of the points-backed securities (text courtesy of the ACE web site):
"[ACE will be] creating sustainable loyalty economics, optimizing loyalty point yield, managing balance sheet liability and providing access to capital by monetizing loyalty currency into a new class of financial instruments. We facilitate issuance and trading of points between loyalty industry participants, partners and investors via point backed financial securities. We enable members to use the ACE Primary market to list loyalty currency instruments/contracts and/or package tranches of points at different values for sale to approved parties including new investors who up until now could not buy into this new asset class. Contracts can also be traded on the ACE secondary market where prices are driven by intrinsic valuation and market demand."
To facilitate the new exchange, ACE has partnered with NASDAQ to build a customized trading platform utilizing Nasdaq OMX’s leading X-Stream platform. The new ACE platform will allow trading of Points-Backed Securities via custom trading rules, flexible loyalty-backed securities design, a set of proprietary client applications by industry vertical, loyalty management system cross-over and comprehensive market data. The exchange will allow for initial offerings, as well as a secondary market for trading the securities.
ACE claims that the new exchange will provide a "venue for new capital inflow, enhanced liquidity, risk management and price discovery available to banks, airlines and all loyalty industry participants globally."
We'll be watching the news from ACE as their points-backed securities market comes online. Exciting times!
Rick Ferguson is CEO and Editor in Chief of the Wise Marketer Group.