Swift Exchange, New York, recently took the wraps off its loyalty operating system, which is designed to integrate with existing loyalty programs to enable consumers to combine rewards they have across multiple programs and to enable participating merchants to maintain better margins, according to Richard Postrel, chief executive officer and founder.

“We’re looking to bridge the gaps and remove the friction built into several of the rewards programs,” Postrel said. “Most of the rewards systems started years ago and still remain on legacy systems that aren’t architected for today’s business.”

As a fix, programs using those legacy systems use various patches, but they don’t always integrate well, leading to a variety of program problems, according to Postrel. “They don’t recognize the core issues and the core problems.”

Though “a few thousand merchants” operate loyalty programs, according to Postrel, Visa alone has 29 million users. “So there is tremendous room for geometric expansion of loyalty programs. But for that to occur, arrangements and relationships can’t happen in the old fashioned way, where you meet to discuss sales, develop relationships and terms. This has to happen in an automated way.”

Swift Exchange has developed a patent-protected and scalable loyalty operating system designed to work with existing and new loyalty programs to provide liquidity, transparency and usability of reward points and miles. Such a system will enable merchants to embrace a paradigm shift in their thinking regarding loyalty programs, Postrel said.

Today’s loyalty programs are based on a model of merchants expecting a high percentage of rewards never to be redeemed, a “breakage” model, according to Postrel. But if consumers don’t redeem their rewards, the perceived value of such programs declines as well. Less value means fewer users, or worse disgruntled customers. That in turn leads to reduced revenues and margins, just the reverse of what loyalty programs should be encouraging, Postrel says.

What makes more sense is tying together disparate programs to enable the customer to instead be able to use rewards more easily, removing many of the restrictions that discourage customers from using many of today’s programs, Postrel said.

By greatly expanding loyalty programs, merchant participants will benefit from better customer satisfaction and increased loyalty, according to Postrel, adding that the Swift Exchange technology should also help merchants cut costs of managing the loyalty programs and of advertising.

Consumers will benefit from having a single sign-on for multiple rewards programs with automatic crediting of rewards (so no searching for rewards membership cards) and more choices for which to redeem their loyalty rewards, Postrel says. According to Swift Exchange, $48 billion of rewards were issued in 2011, but, it’s believed that upwards of a trillion dollars in perceived value has accumulated out in the market. If consumers had more choice and a better underlying system to manage rewards, they would use the programs more diligently, increase their spending and provide better revenues and margins for merchants, according to Postrel.

Swift Exchange expects to start signing merchants on to its platform later this year and launch it in early 2013.

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