Are Digital Assets the New Way to Pay?
By Adam Snyder
Published November 14, 2020
The rewards category has recently heated up with several big names announcing new partnerships, new platforms, and new ways to earn ‘Digital Assets’, airline miles, cryptocurrency, shares of stock, rewards points, gift cards, and more from everyday activity. Yet, according to a recent study, in 2019, 31% are wasted and unredeemed.
The reasons vary, in some cases, individuals didn’t know they had them to redeem because they’ve had the card for so long, were unaware their points expired, or they didn’t have enough points to meet the minimum redemption. Regardless of why, the fact is a staggering 31% of rewards points went unused in 2019, leaving hundreds of billions of dollars on the rewards sponsor’s balance sheet.
Until now, except for a small group of platforms, consumers’ options for combining, trading, or redeeming their points were limited. With the pending launch of Bakkt from the Intercontinental Exchange (ICE) and Engage People Inc., a payments network backed by Lovell Minnick, the rewards category could go through a major overall and change how companies across a wide spectrum of industries approach their loyalty programs.
“Loyalty has always been a priority for any business, and stored values are becoming the norm for the titans of the internet today.” says Michael Jaconi, co-founder and CEO of Button. “From Apple launching Apple Cash, to PayPal acquiring Honey for $4 billion, to Square rolling out Cash App, to Rakuten buying Ebates, all these companies have invested in a stored value strategy to influence consumer shopping behaviour on and off their properties.”
Both companies see the potential in the global ecosystem of digital assets from credit card rewards, airline miles, hotel loyalty points, in-game virtual assets, merchant gift cards, and cryptocurrencies, representing over $1.2 trillion in value, and believe the time is now for a new way for customers to pay, but are going about it in different ways.
Engage People Inc. focuses on loyalty solutions for financial institutions and retailers, including powering “pay with points.” The platform can do this by converting loyalty points to a fiat currency during the online check-out process, directly on a retailer’s site. Engage offers a full suite of technologies that goes beyond traditional redemption and focuses on driving loyalty and engagement for clients and customers throughout the entire loyalty experience. These technologies include a loyalty platform and program management tool, an eCommerce redemption platform featuring large retail partners, traditional merchandise and gift card offerings, as well as acquisition tools.
“2020 has been a year of unprecedented change and disruption in the wake of the global pandemic. As consumers continue to feel the economic pressures of COVID-19, there is a need now more than ever for retailers and brands with loyalty programs to accept alternative forms of currency, like the ability to pay with loyalty points during the online check-out process.” says Len Covello, CTO of Engage People By extending payment options, consumers have the ability to purchase what they need without relying on credit.”
Engage People works with financial institutions and retailers to give customers the flexibility to use points as a form of currency. Engage’s integrations are lightweight for financial institutions incorporating a set of three APIs that offer access to Engage’s retailer network. Once integrated with Engage People, FIs gain access to its pool of retailers, and there’s no need for additional IT work as that network expands. This creates a frictionless and scalable solution. By joining Engage’s network, retailers have an opportunity to take advantage of almost $1 billion worth of currency based on current integrations and growing.
“It has taken the advent of the pandemic to advance the adoption of ‘loyalty points as currency’ by retailers and other service providers. Still, regardless of impetus, the continued growth of alternative payment methods brought on by the pandemic is here to stay. This is largely driven by the increased importance of delivering convenience, efficiency, and a more elegant way for customers to pay” added Covello.
Bakkt started as the first federally regulated cryptocurrency futures exchange, but the company evolved. Since launching the Bakkt Warehouse in 2019, along with its growing suite of bitcoin futures and options contracts, Bakkt has worked to bring trust, stability, and innovation to the digital asset trading market. Jeff Sprecher, ICE’s Founder, and CEO has made it clear on many occasions that he seeks to “transform the global payment system that requires merchants to pay a 2-3% fee to banks, credit card companies, and other intermediaries.” The company’s moves since launch show that it’s headed in this direction.
In February of this year, Bakkt acquired Bridge2 Solutions, one of the largest providers of loyalty solutions for merchants and consumers that powers programs for seven of the top ten financial institutions and 4,500 loyalty, incentive, and employee perk programs for companies across a wide spectrum of industries. The combination of the two companies accelerated the development of the Bakkt consumer application, which will provide digital asset aggregation, conversion, and payments through a single platform for consumers worldwide.
“Bakkt was created to help bring transparency and trust to the previously unregulated digital asset markets,” says Sprecher. “With the launch of the Bakkt Warehouse and Bakkt futures and options markets, the company has achieved quick success with its custody and trading offering. Bakkt’s second round of funding, and its acquisition of Bridge2 Solutions, will help accelerate the development of Bakkt’s consumer application, which has been a key part of our strategy since we first looked at this market.”
Now, in the next few months, the company will launch a consumer app that transforms your digital currency into something much more tangible, allowing you to trade, spend, or send your accumulated digital assets. In short, upon launch Bakkt will be the first and only app that lets individuals interchangeably convert digital assets into rewards, miles, cash, and crypto — ‘creating portfolio value out of simply living your life.’ It promises individuals the ability to find money they didn’t know they had and deliver another funding option.
“With the launch of the Bakkt app, we will, for the first time, offer consumers a robust platform to consolidate and use all of their digital assets, from crypto to loyalty points to in-game tokens, in one user-friendly wallet,” said Mike Blandina, former CEO of Bakkt in a press release dated February 5th, 2020.
Whether it’s credit card points, airline miles, or other rewards, all digital assets have value. As the world is potentially entering a recession, businesses with massive liabilities on their balance sheets from loyalty programs will be eager to see points liquidated and spent, while consumers will need to tap into alternate ways to pay for everyday items, digital assets could be one of the first viable options they look towards.
Adam Snyder
Managing Editor, North America at The Fintech Times