How the “Open Economy” is Changing Loyalty Points
FIS, a global leader in financial services technology, is partnered with Modo to power connections for their loyalty solution Pointopia™. Pointopia “combines all rewards points, coupons and offers from participating retailers, service providers and financial institutions; it then aggregates all rewards, turning them into currency that can be used at the point-of-sale – anytime, anywhere.” Bruce Parker, Founder & CEO of Modo, and Ty Tyree, VP of Loyalty Products at FIS, chatted with Eric Grover on their thoughts and experiences in the “open economy”, how that idea is changing loyalty, and what to expect with Pointopia.
Listen in to the full webinar below, or read the write-up to get the scoop!
Loyalty programs are not a new phenomenon. In fact, back in the 1700s merchants gave out gold coins to their loyal customers that could be used on future purchases. The problem was that these gold coins weren’t associated with a particular merchant so they didn’t engender more loyalty toward a brand. And the merchant that gave the coin didn’t get any data about the consumer after the coin was given. Many issuers have come a long way since the days of completely open loyalty economies, but most seem still stuck in the dark ages.
Today, the “gold coin” equivalent is offering loyal consumers cash-back for the points where points are converted into cash and no strong ties with the brand are created. This is considered a completely open economy. Another strategy is to give loyalty points in a closed network where their points only work within their system. In many closed systems, loyalty points go unused because it’s difficult to amase enough points to redeem something of value. But there are some strategies that sit in the middle of the spectrum. That is where we find the open economy.
The “open economy” is different from a “completely open economy” because it has limits. And that’s actually a good thing. Creating friction in the loyalty process allows the issuer to see where and when their points were used, and reminds the customer where those loyalty points originated. But wait! Isn’t friction something to avoid at all costs? Not if it weakens the relationship with consumers. Being part of the open economy is a huge opportunity to expand options for loyalty point issuers, but they have to make sure they are doing it in a smart way. Issuers have to create just enough friction throughout the process so consumers understand the benefit of their brand loyalty and increasing that loyalty.
The open economy allows for a more individualized loyalty program. Instead of simply giving cash back, issuers are now thinking of the experiences they can enable for their loyal customers based on a better understanding of their customers’ needs and wants.
The open economy also allows for multiple points banks to be aggregated, giving consumers the most value for their loyalty, in contrast to the single, siloed system as we see in closed loyalty networks. Pointopia, the loyalty solution provided by FIS, falls into the open economy strategy.
In many loyalty programs, points are thought of as equivalent to monetary value. In the open economy, it’s about the experience and aspirations of the individual. When loyalty issuers realize that it’s all about the emotional connection with their consumers, they can tailor the experience to the individual consumer and market specifically to them instead of a broad market segment. Technology and solutions like Pointopia are making it much easier for us to do this. Issuers can narrow in on history, purchase behaviors, patterns, and desires to make rewards extremely valuable.
Allowing consumers to burn loyalty points has been a big part of loyalty programs. Consumers are sitting on a huge pile of unused loyalty points (like BILLIONS of them). If they aren’t redeeming their loyalty points then there’s no real relationship between the brand and consumer. Companies that understand this are segmenting their consumers into four types:
- Consumers who are not engaged and will never be
- Consumers that are not very engaged but could be
- Consumers that are engaged but could be more engaged
- Consumers that are so engaged they couldn’t be any more engaged
Along with the different types of consumers, there are two different types of loyalty benefits: hard and soft. Hard benefits are benefits that cost money – like gifting someone a free toaster for their loyalty. Soft benefits are benefits that don’t really cost anything – like a first-class flight upgrade. For the two consumer segments in the middle (2 & 3) issuers want to offer hard benefits and spend money to move their behaviors upstream. For those at the top of the segment (4), spending more money on them doesn’t increase spend, but giving them soft benefits does increase redemption. The open economy is allowing for this distinction to happen in loyalty programs.
What is Pointopia?
Pointopia is a mobile app created by FIS that allows consumers to take their loyalty points and push them into a purchase to simply pay with points. Right now, Pointopia is in the proof-of-concept stage, but is available in the Apple App Store. Pointopia currently works with loyalty points that are part of their Scorecard loyalty program.
Creating a mobile app is not the final stop for Pointopia. FIS is building out APIs that give financial institutions and third party loyalty programs the capability to take points from multiple points banks and push them into a liquid currency anywhere. The ability to aggregate points will boost redemption from consumers who are infrequently engaged by giving them more purchase opportunities, and for the financial institutions associated with the program to strengthen their consumer relationship. To do this, Pointopia is building a two-sided network that involves both merchants and consumers.
If it sounds complex, it’s because it is complex, which is why solutions like Pointopia aren’t ubiquitous. Modo’s role in Pointopia is to build out the connections between payments systems (aka the payments plumbing). In the first stage, Modo is turning loyalty value from FIS partners into a gift card in real time and doing it for a precise amount. This is a natural starting path as merchants already know how to accept gift cards, and no changes are needed on their side to begin creating the two-sided network.
“It takes so much money and so much time, and where we can find companies like Modo that understand payments and how to circumvent the need to go through a painstaking integration process we’re really excited to use their skills to help augment ours so that we can get to the market faster.” said Ty of Modo’s capabilities. Modo’s job is to power a market for payment connections that brings payment services and merchants together. This allows people like Ty to dream up exceptional experiences that unlock value for consumers.
The Future of the Open Economy
Loyalty programs were created by companies to keep track of their consumers and keep them coming back into the store. As they say, “Data is the new oil.” Collecting and refining data makes it immensely valuable. The more data you have about your consumers, the more individualized offers and rewards will become. Once communication has been initiated with a consumer, it’s easier to predict what they’re going to buy or find valuable. FIS is working with Modo to create a communication channel that is valuable for both the loyalty point issuers and the consumers.
Reach out to us at modopayments.com to learn more about how we can help connect your loyalty and payments systems.