Fiat Standard Loyalty Program
In the San Francisco Mastercard office I spent the past ten years building solutions that were card-linked to increase merchant loyalty. The business is fascinating. Customers receive offers from merchants via their bank. They get a discount when they meet certain spending requirements at the participating merchants. This is an example from my Wells Fargo personal bank account.
The offers drive new customer acquisition, reactivate lapsed customers and drive higher spend frequency and ‘basket size’ from existing customers. The marketing solution has a high success rate in driving increased spending, mostly through debit and credit cards.
Enter Bitcoin
The use of Bitcoin for currency is not given much consideration, since bitcoiners should hodl bitcoins and are worried about incurring tax events. But, if we put these worries aside, lets examine how to drive merchant loyalty using bitcoin rails rather than fiat rails. What is the difference? What changes?
Costs
Any fiat merchant offer program can be expensive. It requires a complex and large tech stack, as well as a dedicated team to do things like: verify merchant credentials, confirm the merchant’s contract, allocate offers to cardholders based on forecasted budgets, identify qualifying events, award statement credits to redeeming cardholders, create reporting to demonstrate program effectiveness to merchants and reconcile billing. All consumer spend is driven by the credit card, which is the most costly payment channel for the merchant.
Bitcoin rails eliminate a number of these steps. A self-service platform could allow merchants to participate in something similar to Google Adwords, where they would commit to bitcoins in order to fund their marketing budgets in real-time (which is also possible with fiat offers programs). Banks and card processors are removed from the entire value chain as they no longer act as gatekeepers. They, along with their fees and costs, can also be deprecated in real time. Most importantly, the redeeming-transactions are all now driven on low cost Lightning Network rails, stripping out not just the direct credit card fee costs (typically 3% or higher) but also the indirect costs of chargebacks and fraud.
New paradigms
Fiat rails are causing consumers to not be notified that their merchant offers program was successful at the time of purchase. In addition, the credit for the offer isn’t reflected on the statement until days later. A bank can invest in a real-time-notification offer-redemption solution but it’s prohibitively expensive and complex to do so, and has to be done on a bank-by-bank basis; very few do this, and there is no universal protocol to be leveraged.
Merchant funding of the fiat offers has to happen in advance via pre-funding of a committed budget, or payment is chased down with the typical ‘30 days’ type credit agreement, supported by contractual obligations.
Bitcoin Rails revolutionize these existing frameworks. Customers can also send. They can get this visceral peace of mind by using a native bitcoin offer at point of sale. Get a Discount Real time payments are also possible. Not only that, but ‘split payments’ is supported by technology like LN Bits and Bolt 12, where the bitcoin-native offer provider/company can also get paid in real time at the same point-of-sale event. This essentially makes the fiat ‘billing’ step obsolete. The merchant can change offer prices, spend minimums and the most important thing is the inventory They can also see the remaining discounts and offers (the budget for marketing) in real-time. Such changes are not possible via fiat channels, which require budget commitments weeks in advance. There are many unfair advantages that bitcoin offers merchants in terms of providing a merchant offer program. But I won’t go into them now.
Caveats
Reach: A merchant’s participation in an offer program will be more profitable if it has a large audience. The bitcoiner audience, and what I call the ‘bitcoin-curious’ audience, are still relatively small segments, though growing.
Fiat merchant programs can target consumers based on their transaction histories. This is something that Bitcoin cannot do, at least not directly. The merchant can use this history to spend marketing dollars on certain consumer groups, such as new customers and lapsed ones. This is an invaluable tool to ensure highest return on advertising spend (ROAS) and also enables insightful before-vs-after test vs. control ‘incrementality’ reporting, proving spend lift of the marketing campaign that is highly convincing and useful to merchants who need to justify spending money on the offer campaigns.
It is in the best interest of any retailer to be the first to capture this valuable market segment.
This is an excellent example of the way bitcoin removes costs and fees from legacy systems, allowing merchants to earn higher profits and providing a much more satisfying and immediate experience for consumers. The long list of unfair benefits that bitcoin native merchants offer cannot be replicated by competitors operating on fiat rails. My last 10 years of experience in CLO Merchant Loyalty Programs has led me to this conclusion.
Michael Saylor claims to “Buy bitcoin, and wait”. For many of us bitcoiners, we have the opportunity to not just ‘wait’ but to proactively help drive hyperbitcoinization. My expertise and experiences will help me bring merchant offers that are bitcoin native to life. By re-imagining fiat mining jobs through the perspective of bitcoin, I am curious to see what cost savings other bitcoiners will discover.
John McCabe has written a guest blog. Opinions are solely their own, and may not reflect the views of BTC Inc.
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Source: bitcoinmagazine.com
