We've written at length about the pressures threatening to disrupt the legacy loyalty marketing industry - both loyalty programs themselves, as well as the technology providers, agencies, and consultants that enable them. Today we launch a new article series we call “The Distruptors,” which focuses on those innovators who may transform the nearly 40-year-old loyalty space.
Few men are more attuned to the forces of disruption then Charles Ehredt, managing director of the Currency Alliance, an early stage Barcelona-based digital currency company. A former Accenture consultant-turned entrepreneur, Ehredt is attempting to upend the loyalty industry with a platform that simplifies how loyalty currencies are managed and exchanged.
If successful, he may do what no other loyalty platform can do - create a loyalty program that works not only for your top 15 percent of customers, but also for the other 85 percent. In this interview, Ehredt expands his vision for how digital currencies have the potential to transform customer loyalty.
By Rick Ferguson
Q. Tell us about how you came to be interested in digital cryptocurrencies, and how did that interest lead to launching Currency Alliance?
Ehredt: I grew up in a farming village in Illinois about two hours west of Chicago, so I learned how to be resourceful at early age. By the time I discovered the word entrepreneur, I had already started six companies. About five years ago, I thought that the most valuable marketing data in the future will be data that captures what people actually buy. Soon, mobile wallets will capture that data - but I didn't want to launch a mobile wallet company and compete with Apple, Google, and all the big banks. So about three years ago, I became interested in digital currencies. I'm not passionate about Bitcoin per se - but cryptocurrencies are very interesting and I believe when Blockchain matures, it will be transformational for business and society. Money needs to become digital. It arguably already is - most of us today only touch about $200 or so in cash during any given month.
Q. When did you realize that cryptocurrencies might be able to transform loyalty marketing programs?
Ehredt: My hypothesis has always been that companies succeed by putting the customer at the center of their business model - so that belief led me naturally toward the loyalty industry. About two years ago, I was consulting for one of the big coalition loyalty program providers. I learned that the company was charging a penny for each point they sold to the coalition partners - but they were taking half of that penny to cover operating costs and profit. That meant that customers only received half a penny in value for each point they earned. How is it possible in today's internet-enabled world that there's this intermediary robbing that much value out of the loyalty ecosystem? That realization led me to assemble a team to create Currency Alliance and build a technology platform that placed the customer at the center of the loyalty ecosystem. Unlike the big coalition companies, we want to remove friction from the system and transfer directly to customers all the value paid by the merchant - and give them the freedom to use that value however they want.
Q. It sounds like you're taking aim squarely at the big coalition loyalty programs. Is that your goal?
Ehredt: We believe coalition is the best model for loyalty programs - but we're taking that model to the extreme. Every merchant on the planet could issue our currency, and every customer on the planet could use that currency however they want. Most loyalty management systems are way too complicated, and therefore quite expensive. We simplify loyalty to the basics - With one simple integration via API to the Currency Alliance platform, clients can collaborate with other partners to set up campaigns, share or exchange loyalty currencies, acquire new customers, and profitably reduce program liabilities. Loyalty redemption at the POS is essentially a micro-payment; merchants can't use issuers to facilitate micro-payments, but our platform enables them at no cost. So we're focused on the loyalty industry both because of its size and its potential to go through significant transformation.
Q. What about proprietary loyalty programs - how will cryptocurrencies impact them?
Ehredt: We believe there are too many loyalty programs with incompatible loyalty currencies and that prevents customers from capturing a meaningful amount of value across the places they shop. Proprietary loyalty programs do an excellent job of providing value to elite customers - those customers who accumulate enough value in the program to redeem for something of interest. But they make up at most 10 to 20 percent of your customer base, which means that the program´s loyalty currency is irrelevant to 80 percent of your customers. That's why consumers join so many programs, but then give up when they can’t extract any value from them. We want to offer a currency that is relevant to that mid- to long-tail of customers.
Q. It sounds like you're poised to disrupt the industry. Do you consider Currency Alliance a disruptor in the loyalty space in the way that, say, Uber disrupted the transportation business?
Ehredt: Our platform is not specifically designed to be disruptive. To a retailer with an established loyalty program, we are not disruptive to that program but rather additive, because collaborating in a larger ecosystem rapidly adds value for customers and enables a smooth transition path to the future, more open loyalty model. We may indeed prove to be disruptive to the big coalition operators, since they make massive profits from those programs; if they are forced to adapt to a low-friction alternative, then their stock price will tumble. Our business is based on a few observations about the loyalty industry, technology, and the general lack of loyalty program effectiveness. Loyalty programs must become more relevant with their currency and differentiated in how awards are granted. Technology may reduce the number of loyalty currencies issued to a few global ones, or it may facilitate a global marketplace in which consumers can trade one currency for another. Our platform will support either scenario. What we do know is that the status quo won't continue.
Q. There are many blockchain-based startups that also have designs on the loyalty space. How do you position Currency Alliance against them?
Ehredt: By my calculations, blockchain miners make about 20 cents per transaction. Every 20 months or so, the number of bitcoins released as the miners reward for their service is cut in half. The energy required for mining is massive - eventually, they won't be able to cover their costs, and they'll have to charge a transaction fee. If the long-term block processing fee is five to six cents, then miners will need to charge six to seven cents for no value-add, or 15-20 cents for added value transactions. If that's the long-term cost to process loyalty transactions on the blockchain, then blockchain won't work for most loyalty transactions, which are worth 20 to 40 cents in value. We embrace a hybrid model - we process all small transactions in our environment and copy them to the blockchain once per hour, but we allow each merchant partner to decide at what economic value a transaction should be processed directly on the blockchain. We provide the benefits of blockchain security and transparency, but without the operating costs. Blockchain-based loyalty platforms are great for proof of concept, but we believe the cost is not sustainable for the average loyalty transaction.
Q. Where do you go from here?
Ehredt: We finished tech development in about six months, so we've started selling our capabilities. Some of the largest brands in the world are interested in our platform to exchange their currencies. Our platform can work with the Internet of Things - we can turn an appliance manufacturer into a service provider by enabling them to receive micro-payments for the use of their appliance. We can also go after merchants to join a coalition; we could have 30-40 million members in our program within a year or so. That might put us in the top 10 loyalty programs in world.
Rick Ferguson is Editor in Chief of the Wise Marketer Group. Learn more about Currency Alliance here.