Brands that have loyalty programs are always searching for any new technology that can help create a better customer experience, increased engagement, and reduced costs.

According to a new study from the Deloitte Center for Financial Services, blockchain technology−a distributed database that maintains a continuously growing list of records called blocks secured from tampering and revision−could be the answer to more effective and engaging loyalty programs.

“Customer loyalty programs are not realizing their full potential due to low client retention and redemption rates, time delays, and high costs,” the study notes.

Blockchain as a customer loyalty solution can help companies’ loyalty programs that suffer from inefficiencies such as the paucity of uniform management systems that is a primary source of members’ lack of activity, the study says. Blockchain technology can help realize the full value of customer loyalty programs.

Each block contains a timestamp and a link to a previous block. The blockchain is a technology that underlies bitcoin, which was conceived in 2008 and first implemented in 2009, where it serves as the public ledger for all transactions.

“Any organization (from banks to airlines) that has rewards programs can take note of the gained efficiencies, reduced costs, and enhanced brand loyalty that this powerful technology can provide,” the study notes. “Loyal customers are one of the primary drivers of any for-profit business. By building loyalty rewards programs, companies aim to heighten the customer experience. In many cases, however, the opposite has occurred. The implementation of blockchain can drive the customer experience to the next level.”

According to the study, here are some ways blockchain can help brands enhance their loyalty programs:

Reduce costs
Although blockchain incurs upfront expenses, we believe that the trade-off cost savings will be identifiable on three major levels–system management, transactional, and customer acquisition. A blockchain-based loyalty rewards program should reduce system management costs with smart contracts that report secure, tracked, transparent transactions to legacy systems, reducing costs associated with errors and fraud.

Enables a frictionless system
An airline credits a customer’s rewards in the same digital wallet from which he/she redeems them for the hotel. Through a trustless, decentralized technology solution, blockchain is centralizing the customer’s loyalty programs. Loyalty providers decide how and with whom the customer uses these rewards, but from a consumer perspective, his/her ability to access and manage them is practically frictionless.

Makes the process near real-time
Blockchain can enable a transaction to be recorded and accessed by multiple involved parties in near real time, increasing the chance that a loyalty rewards program provider can cut through coordination inertia to credit points faster.

Provides a secure environment
Blockchain creates an immutable and time-stamped distributed database entry of every single transaction ever made, making each transaction and its record easily traceable, but also rendering them irreversible, preventing double spending, fraud, abuse, and any other type of manipulation of the transactions.

Creating unique business opportunities
At the onset of building an interlinked loyalty network, large loyalty rewards program providers with well-developed programs will have unique opportunities to offer value-added services to other businesses.
Blockchain, according to the study, offers a mechanism by which a loyalty program would function similarly to digital currency.

A blockchain implementation consists of two kinds of records: Transactions and blocks. By storing data across its network, the blockchain eliminates the risks that come with data being held centrally.
Its network lacks centralized points of vulnerability that computer hackers can exploit. Today’s Internet has security problems that are familiar to everyone. Instead of a “username/password” system to protect customer identity and assets online, Blockchain security methods use encryption technology.

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