Technology Might Finally Make Loyalty Programs Worthwhile

In February Macy’s joined the parade of retailers leaving the Plenti rewards program that was launched by American Express in 2015 when Costco switched from the American Express Card to Visa. American Express (AMEX) then recruited corporate partners for their new rewards program that included Exxon, Mobil, AT&T, Rite-Aid, BI-LO and Chili’s as well as Macy’s. AT&T ended their participation in November, and in January Hulu, Nationwide, Enterprise and Expedia exited the program. Even American Express is removing Plenti as a rewards transfer partner. Macy’s customers have until May 3rd to use up their accumulated points.


When AMEX issued its first payment card in 1958, it chose to extend credit to highly qualified members for a maximum of thirty days. A cardholder was allowed to make non-cash purchases as long as the balance was paid-off each month. Members paid annual fees, and merchants paid transaction fees of up to 4% upon card purchases at their locations. American Express discounted transaction fees as long as merchants who hung the blue American Express sign locked out Visa, Diner’s Club and MasterCard. Costco, which went so far as to allow AMEX cards to serve as both payment and membership identification, was the last major retailer to agree to that arrangement.


Before AMEX issued its first payment card, it was best known for Traveler’s Checks, which were originally launched to replace the letters of credit that wealthy international travelers had previously carried. Traveler’s Checks had the distinct advantage over currency in that they could be replaced if lost or stolen. But the undisclosed genius of the AMEX Check model, later copied by PayPal, is in the “float.” Unwritten checks were funds-on-deposit with AMEX—no-interest loans of indeterminate length from customer to company. American Express has a firm policy of accepting money for nothing.


When Costco began its switch to Visa in 2015, AMEX created the Plenti Membership Rewards Program. But after only two years, Plenti looks to be dying. Exiting merchants have chosen to participate in other rewards programs, or like Macy’s (Star Rewards) and AT&T (Thanks), have created their own. Plenti participants were attracted not only by the promise of discounts on future purchases at multiple retailers but also by the possibility of receiving a check-in-the-mail for earned rewards when requested. Few customer-participants received checks. Only after they accumulated 1000 Plenti Points could they request a $10.00 check.


But what if loyalty program points had an actual cash value that could be spent anywhere, anytime on anything? Could points earned then be considered a universal medium of exchange with lasting value? Financial technology has already invented units of value that can be exchanged between individuals without involving an intermediary, who will control the transaction, be owed a service fee and will by definition delay the process. Middlemen are being replaced by tokens like those once used in arcades, subways and carwashes. Today that token is a digital entry on a computer with a unique code known only by the owner. That token—Bitcoin—has already become globally recognized as a store of value. Other digital currencies, like Ethereum, are vying for the cryptocurrency throne by providing greater programming flexibility and lower transfer fees.


An endeavor to monetize customer incentives and loyalty rewards is now making its debut via an Initial Coin Offering (ICO). invites merchants to invest in its blockchain-based currency, SAT on the Ethereum network. Initial investors will gain influence over “smart contract” rules of the future digital currency, and invested merchants will then be able to create their own “Branded Tokens” for use in their stores, outlets and on their websites. Their tokens will also be redeemable for the universal SAT token. SAT, like Bitcoin, Ethereum and Ripple will trade on cryptocurrency exchanges and will also be convertible to a fiat currency such as the Dollar, Euro, Yen or Yuan. Customers of participating merchants will earn branded tokens without expiration dates that can be traded for tokens of other brands or for SAT.


The fiction of a customer reward being spendable currency has been a driver of loyalty programs. But participants have often found their hopes dashed by pre-established limits upon where, when and for how long they can spend, redeem or otherwise take advantage of rewards they have earned. Only four major merchants accepted transfers of Plenti Points. Airline frequent-flyers can purchase travel only during less-traveled times of the year. Most member rewards points have expiration dates.


Blockchain technology has been linked in the media and by the market to the fortunes of only the most primitive example of its potential—Bitcoin. Bitcoin does nothing more than count and irreversibly verify that count without the possibility of an error. Like the first computers of the mid-Twentieth Century, it calculates and remembers without fail. It is a prodigious science experiment that has succeeded beyond the dreams of its creator. But one new smartphone is better than the sum-total of computing power that put a man on the moon. Blockchain technology has the potential to revolutionize commerce, medicine, politics and social relationships as much as computers did space travel. Decentralization of human activity via blockchain has the potential to move the control of financial information away from large centralized platforms like American Express, Amazon and the U. S. Government, and toward the customer, user, and citizen.