Loylogic

The Track of Success

48 Trillion Unspent Loyalty Points – An Opportunity For Merchants

London, UK
10 April, 2018

Akif Khan
Head of PointsPay at Loylogic

When I tell people that there are approximately 48 trillion unspent loyalty points and frequent flyer miles sitting dormant in loyalty program members’ accounts globally, the first reaction is usually one of surprise. The next reaction is usually a nod of recognition, as they explain that they too often struggle to find meaningful ways to redeem the points that they have. This is an important fact that online merchants should note, as there is a growing opportunity for them to tap into this phenomenon to drive incremental revenue and drive customer acquisition.

The convergence of loyalty and payments taking place today is leading to an increasing number of loyalty programs allowing their points to be used as virtual currencies outside of their traditional walled gardens. It is, of course, very well established for loyalty programs to provide online reward stores for their members, where hard-earned points can be exchanged for products from a carefully curated catalogue put together by the loyalty program. This has been a successful model, and at Loylogic we run a number of such popular reward stores for our clients and will continue to do so, demonstrating value to members who are participating in the loyalty program.
However, consumer habits have evolved and are becoming ever more demanding. It’s no longer just enough for a loyalty program to offer an online reward store that only a subset of members are likely to visit regularly, or a range of gift cards as their most flexible option. For loyalty programs to really engage their members and demonstrate that there is value in having their points, they need to be present where members already spend their time shopping and insert themselves into that process in a frictionless manner.
As in so many retail scenarios, Amazon has already been experimenting with this. Within the US at least, members of various credit card reward programs can redeem their points on the Amazon.com site via its Shop With Points scheme. Amazon is typically tight-lipped about how successful this has been, but it’s hard not to see why it would be appealing to members of the participating programs. However, what works for Amazon doesn’t always work for everybody else. There are plenty of other online retailers out there that customers love to shop at, and most are not going to have the time, resources and negotiating leverage to strike deals with the world’s leading loyalty programs.
To address this huge opportunity for merchants, at Loylogic we’ve launched PointsPay. A payment button that, when added to the checkout pages of online retailers, enables members of participating loyalty programs to purchase with their points, or a combination of points and their payment card if they have insufficient points balance. All with the minimum amount of friction and right in the flow of their normal online shopping process. Loylogic handles the financial processing of the points with the loyalty program, and the merchant is funded in cash.
The value proposition for merchants is clear. Firstly, this brings new money to the merchant. The majority of alternative payment methods – PayPal, iDeal, ApplePay etc. – rely on the customer having actual funds. Loyalty points, however, represent a virtual currency that is otherwise inaccessible to the merchant. Secondly, this brings new customers to the merchant, at a time when the competition for customer acquisition is fierce. The loyalty programs are keen to engage their members, and for their members to get value from their points. As a result, the loyalty programs promote merchants in the PointsPay network to their millions of members globally via their websites and regular email communications. Finally, since members are spending ‘free’ money in the form of points, we see that they spend with less inhibitions. Typical basket sizes for transactions made via PointsPay have been up to 9% higher than the average on some merchants.
Loyalty programs representing over 52 million members globally are already using PointsPay. The growing convergence of payments and loyalty shouldn’t be ignored by merchants, and the trend towards increased liquidity of loyalty points is well underway. As merchants explore how to differentiate themselves from their competition, drive incremental revenue and search for force-multipliers on the marketing front, the opportunity to tap into the global pool of unspent loyalty points is worth exploring further. There are, after all, 48 trillion very good reasons to do so.