By Joe Streeter – January 10, 2022

Writing for PaymentExpert, Julian Wilson, Director, Consumer Innovation at FreedomPay details the impact the growth of data innovation could have on the overall user experience.

For years brands have regarded customer loyalty programmes as a valuable tool for recognising and rewarding their regular customers.

They do this with points or discounts or other incentives.  And for those companies who have the skills and technology to invest in their loyalty programme, it works. According to Experience Matters, loyal customers are 5x as likely to repurchase, 5x as likely to forgive, 4x as likely to refer, and 7x as likely to try a new offering.

However, loyalty is not easy or affordable for many businesses.  An effective loyalty programme requires significant investment in technology, skills, and time which, when combined with the legal obligations and acquisition costs, is unaffordable for many companies.

Even when loyalty is ‘working’ the programme operator only ever has insight into their existing customers. Loyalty programmes show a business what currently happens with existing customers. The business of acquiring new customers is dominated primarily by several major tech companies who effectively sell ‘propensity’.

By propensity, I mean accumulated data about an individual which may indicate or suggest that they are likely to buy your product.  Suffice it to say, this is the world of cookies and ‘click thrus’, digital advertising campaigns and SEO. But new data laws around the world such as the EU’s General Data Protection Regulation (GDPR) and its US equivalent CCPA is frustrating access to this type of data and/or making it onerous to use.

That said, recent developments in computer science combined with new financial legislation in many countries around the world will offer an alternative approach. This new approach has the potential to redefine loyalty and its impact on both the merchant and the customer.

By way of establishing how we ‘got here’: Web1.0 was defined by the Browser and HTML creating a standardised means to access, view and navigate the Internet’s vast resources. Next came Web2.0 which was defined by APIs enabling hybrid ‘web’ applications simplifying service delivery for many types of businesses.

The emerging Web 3.0. will be defined by the use of cryptographic proofs to enable people to assert something they have earned [loyalty], proven [identity] or own [money], and a business to verify ownership or permissions, or veracity without needing a pre-arranged relationship.  These ‘cryptographic’ building blocks were first introduced between 2008 and 2010 when Satoshi Nakamoto described and published the bitcoin protocols and currency.

The bitcoin protocols were put into Open Source and provided the likes of Ethereum, Hyperledger, Sovrin and others, to do new things using the same techniques.  One of the new ‘things’ to emerge is ‘Self Sovereign Identity’ [SSI] and Zero Knowledge Proofs [ZKP] in other words they enable a consumer to assert something [earned, proven, own] without necessarily revealing their identity, but whilst giving the business the confidence to rely upon the information.

Now, let’s imagine combining cryptography with a series of reforms which now require banks to make this valuable information accessible to both their customers and non-banks (Open Banking) and we see how we can redefine loyalty – in this world I don’t walk around with my airline or supermarket loyalty card, I walk around with my ‘airline spend or supermarket value’ badge. These changes are technically possible today and will allow merchants to make informed decisions on acquisition and retention, crucially without ever having any prior relationship with the customer.

In many ways this approach is diametrically opposite to what happens today:  a consumer is loyal to themselves [not a brand] and they can broadcast their intent [not passively receive marketing].

These web3.0 capabilities will enable identity and data management influence retention, acquisition, eligibility, and reward strategies in a way which is affordable and manageable for a business and better respects the privacy and importance of the customer: whilst at the same time creating the opportunity for new creative marketing to evolve.

Research has proven the value of retaining loyal customers over acquiring new ones. By increasing customer retention by just 5% through loyalty programs and offers can increase profits anywhere from 25%-95%, proving the worth of a value customer.

This Data Nirvana scenario is technically possible today. However, introducing something which requires a change in consumer behaviour is never trivial. It remains to be seen how businesses will incentivise us all to make our data available and more importantly whether we will be persuaded by their ‘invitations’.|

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