Deloitte's new blockchain report: Exploring the use of blockchain to turn loyalty rewards into a digital currency (download the full report)

Deloitte recently released a new report (download the full article) that explores how blockchain can be used in customer loyalty rewards programs.

The report, published by the Deloitte Center for Financial Services, found that most customer loyalty programs offered by U.S. companies face a problem of underutilization and high program management costs. At the same time, the report found that loyalty reward recipients may abandon these reward programs due to lack of convenience.

According to Deloitte, blockchain presents a potential solution in this regard, with the technology providing a mechanism by which loyalty programs could function like digital currencies, for example, allowing customers to earn reward points that could then be used to subsidize airfare.

The report’s authors state:

“In short, loyalty rewards are a form of digital currency, so the same engine that enables bitcoin to be traded across multiple parties for services, goods, and even other currencies can naturally be used for loyalty rewards points as well.”

This concept — using blockchain technology to create a more seamless and integrated loyalty program — has attracted a lot of attention in the past.

Startup Loyyal is already creating a platform dedicated to this use case, and other companies, such as China UnionPay, have teamed up with IBM to explore using blockchain for similar capabilities.

In this report, Deloitte believes that blockchain can help cut out certain intermediaries in the reward distribution and redemption process, reducing friction between reward issuers and customers receiving rewards.

The report authors believe:

“We believe that blockchain technology can enable the creation, redemption and exchange of loyalty points instantly and securely in a trustless environment, using cryptographic proofs to replace trusted third parties and administrators.”

However, there are still some issues to be resolved, especially on the regulatory front. The report authors speculate that 'blockchain could remove millions of dollars of idle loyalty point liabilities from balance sheets,' but for now, regulators may be reluctant to approve this new business.

Ultimately, Deloitte believes that the success of blockchain in the loyalty space depends on whether enough companies are actually willing to take the risk of adopting the technology in a meaningful way.

The report authors asked:

"So what are we waiting for?"