Crypto, an emerging digital asset, continues to command the attention of financial institutions, retail investors, merchants, and many others. Throughout 2021 there has been a significant increase in consumer interest and adoption which has led to merchants making moves to accept Bitcoin as a form of payment, credit/debit cards unveiling crypto rewards, and the major banks reporting an uptick in questions regarding adding crypto to investment portfolios. El Salvador became the first country to use Bitcoin as legal tender in September and the first Bitcoin ETF in the United States begins trading in October. These dynamics have left many people and companies curious about the new digital asset class, open to dipping their toes in Bitcoin or Ethereum, and interested in tapping the potential of digital assets they might already hold.
By: Nancy Gordon, Bakkt
Simultaneous to the curiosity around crypto, there has been a seismic shift in consumers spending habits in response to the peaks and valleys of the Covid-19 pandemic and new strains of the virus. Most notable was the shift towards everyday spend categories that catered to the basic Maslow's Hierarchy of Needs. Similar behavioral changes were observed in the types of items being redeemed within rewards programs. In frequent traveler programs consumers initially hoarded their rewards in hopes of using them for travel. However, business travel has nearly evaporated and as leisure travel begins to return, demand on local getaways has prevailed over trips requiring either flights. In credit card programs, consumers have shifted redemption of credit card points towards more practical rewards such as gas, grocery and general merchandise, using a feature where many credit card programs permit customers to redeem directly for these rewards. In quick service restaurants and retail, consumers began enrolling in reward programs at greater rates as the physical economy reopened. In an effort to capture consumer spend and loyalty, many companies refreshed their existing programs, launched new programs, or partnered with complementary brands to enable more seamless experiences.
Regardless of each loyalty program’s unique features, the fact remains that holding onto rewards points can have limitations. The longer rewards sit in the customer’s account, they are subject to expiration, changing values, changing terms or abandonment. This can lead to a less rewarding outcome for the customer caused by diminished redemption value for use at the merchant where the rewards were accrued. The reality is that rewards program operators are permitted to devalue the rewards currency as they see fit, leaving consumers vulnerable when they don’t do anything and ignore a coffer of accumulated rewards. Net effect is the program is less rewarding for the consumer and the merchant misses out on providing a unique brand engagement and association — a primary reason why loyalty programs exist.
Given the macro-environmental changes, it’s no surprise that reward liabilities being held at the companies that issue reward programs are at an all-time high, especially given the ripple effects of the pandemic through travel, entertainment, and spending. Annual reports for major airlines and credit card companies show billions of dollars being held in liabilities per company. Why do consumers continue to collect rewards even though they are not redeeming?
What Matter's Most to Consumers?
This can be due to a variety of reasons. In Bakkt’s July 2021 Loyalty Consumer Survey, we asked consumers what mattered most to them and what friction points they faced with loyalty programs across 5 primary themes:
- flexibility to redeem
- redemption options
- ease of use
- data privacy
Consumers revealed that redeeming points to cash, offering multiple ways to redeem, and clear and seamless earning/redemption were mission critical attributes across programs and sectors. In fact, 70% of consumers believe converting points to cash or other digital assets is a 'must have'. Redeeming for small unused point balances is also highly desirable and can deliver a new engagement moment for brands and bring those consumers back.
The ability to redeem for crypto currency is beginning to emerge and interest levels are increasing. In another Bakkt Survey of 2,000 U.S. Consumers, nearly half (48%) of respondents reporting purchasing crypto in the first half of 2021, while 32% of those who didn’t are either very or somewhat interested in doing so before year end. For as little as $5 or the equivalent of 500-1000 rewards points/miles in most programs, customers can get started. Crypto Rewards can close a knowledge gap, alleviate barriers for customers to explore crypto and help them reach their goals. In addition, crypto can help your brand attract and engage with young audiences. Those aged 18-44 are the most interested group with 37% saying they are interested in investing in crypto for the first time in the next 6-months.
Not only do brands have the chance to position themselves at the forefront of this evolution, but loyalty programs can provide customers with the option to earn crypto rewards or redeem rewards for crypto — unlocking the potential to achieve more value from their rewards. Permitting rewards currencies to work harder for customers is to allow for redemption into the path of owning crypto currencies such Bitcoin, Ethereum and others. For many programs, crypto-linking for both the earning and redemption in their rewards program can serve as a gateway for established players and help defend against the plethora of new crypto based rewards value propositions in market and on the horizon.
We’ve embraced a new level of flexibility in our personal lives with athleisure and work from anywhere. The evolution of rewards program flexibility is already on its way. Merchants have already made a shift to expanding uses of their rewards while thoughtfully integrating moments of surprise and delight that can go a long way towards driving consumer choice. Cryptocurrency rewards have emerged and are likely here to stay. It’s not “if” they are coming to your sector, but rather “when.”
The choice is all yours — will your loyalty program choose to be a sector leader in this new and emerging reward type or wait as others in the market position themselves to fill that role?
Nancy Gordon is Executive Vice President, Loyalty, Rewards & Payments at Bakkt. She is a Senior Executive with meaningful experience in Data Ecosystems, Financial Services and Loyalty Marketing.