We recently caught up with Len Covello, CTO at Engage People, a global loyalty tech company. Covello explained how loyalty points are an often-overlooked alternative payment option.
Covello talked about how the demand for having the flexibility to pay with points as easy as credit or debit online has exploded amid the COVID-19 pandemic.
He discussed how brands and banks alike can take advantage of the trend by joining a “loyalty network.” He also commented on how consumers stand to benefit from their loyalty program sponsors getting on board with viewing points as a valuable form of digital currency.
Our conversation is shared below.
Crowdfund Insider: Alternative currencies and the demand for alternative payment options have been gaining a lot of attention lately, especially given the shift toward contactless. What makes loyalty points different from other forms of currency?
Len Covello: The primary difference between loyalty points and other forms of currency is that loyalty points are fully funded and have no volatility. Loyalty points have an understood dollar-to-points ratio and thus pose no risk to the customer or retailer.
In addition, unlike credit cards, loyalty points aren’t associated with debt. The consumer collects points on purchases made with their card, and once these points are used in a transaction, there is no interest charged on the purchase. Points can be used in association with other forms of payment to supplement the purchase or discount the use of credit or cash.
Crowdfund Insider: How has the industry’s view of loyalty points shifted amid the pandemic, both from a business and consumer perspective?
Len Covello: Previously, loyalty points have been viewed as a separate wallet — something that would typically be reserved for larger, more aspirational purchases. However, as people face heightened economic uncertainty, they tend to look to extend available capital resources separate from relying on credit. Viewing points as another form of currency provides consumers with another option that doesn’t impact their traditional savings accounts.
In addition, the expansion of e-commerce paired with tech innovation over the past year has opened doors to the broader acceptance of alternative payment methods, including loyalty points. Where points were once largely spent on travel-related purchases, they’re now being accepted as a form of payment for everyday items on e-commerce sites like Amazon, for example.
For businesses, accepting points as currency provides them with an additional source of revenue they otherwise would not have access to. As long as the transaction can be settled in an accepted currency, businesses are able to expand their potential customer base without increasing their risk.
Similar to the push to accept cryptocurrencies from players such as PayPal, we’re seeing more companies like JPMorgan and Mastercard enable ‘Pay with Points’ technology — making points an accepted form of currency.
Crowdfund Insider: Arguably, there’s a clear benefit for consumers to be able to leverage their loyalty points as currency. What’s in it for the banks and retailers?
Len Covello: For banks, unspent points are a liability. Offering points as currency allows banks to reduce liability while also expanding on a key driver of any loyalty program: redemption. Increased redemption options creates affinity and increased engagement with the bank as the loyalty program sponsor, resulting in more opportunity to up-sell additional services.
Offering points as currency also provides a demonstration to program members that their bank is at the forefront of the future of payments, which is increasingly important at a time of heightened competition with fintechs and neobanks.
For retailers, they’re able to gain access to a broader customer base with a larger wallet size. The ubiquity of points means an opportunity to expose retail offerings to a greater number of new customers. It also opens the door for partnership opportunities with banks and other complimentary retailers through a “loyalty network”.
Crowdfund Insider: What exactly is a “loyalty network” and how can organizations take advantage of this?
Len Covello: A loyalty network is an established, trusted network of multiple loyalty programs and retailers that support the exchange of loyalty points in real-time. Banks are able to use third-party technology companies to select the particular retailers and brands they want to be available for their loyalty program redemptions.
Loyalty program participants have the ability to use their points as currency at participating stores. Once the banks have these systems in place, it is easy to onboard new brands and retailers, offering banks flexibility in terms of partners. The main benefits of a loyalty network are to remove barriers at checkout for consumers and drive down implementation time as well as costs for retailers and banks.
Crowdfund Insider: While there is no crystal ball, especially given the year we’ve just had, what do you think will define the future of payments?
Len Covello: Consumer demand for alternative payment options like contactless payments, loyalty points as currency and other digital currencies increased throughout the pandemic. As such, we’ll see broader acceptance of these other currencies or other payments methods in the coming months as the ecosystem continues to evolve.
Combined wallets will continue to gain popularity, and customers will earn and invest with whichever currencies they feel most aligned with. For example, someone could invest and save with crypto, and partake in a rewards program that pays out in that currency. The consumer could see the value of that currency converted to USD ($) in real-time, and then make purchases where they would normally shop. Companies that can enable this transaction without significant investment on established payments networks will bring tremendous value to the whole payments ecosystem.
This is just one example of expanded consumer adoption of technology, the demand for flexibility when making purchases and the growing expectation of immediacy when it comes to payments.