Sydney-based startup LoyaltyX is seeking to reinvent the way consumers engage with loyalty programs while simultaneously contributing to the mainstream adoption of cryptocurrency, according to co-founder and CEO Philip Shelper.
Supported by a $15,000 TechVoucher grant from the NSW Government’s Boosting Business Innovation Program, LoyaltyX recently completed a six-week trial of its solution in partnership with the UNSW School of Computer Science and Engineering. As part of the trial, a cohort of 170 university staff and students were rewarded with the cryptocurrency Ether whenever they shopped at participating on-campus retailers. For each purchase, a participant earned a digital stamp, with ten stamps converting to $10 worth of Ether.
“Ether is a floating currency, and over the course of the trial participants saw their Ether balance increase in value by 30 per cent,” Shelper said. “Those that chose to keep their Ether rather than cash it in have seen a gain of over 450%. Cryptocurrencies could provide the first major advancement in loyalty program design since frequent flyer programs were launched in the early 80s.”
Shelper spoke to Dynamic Business about the problems LoyaltyX addresses, his ambitions for the startup, which he co-founded with Andrew Lowe, the support provided by the NSW Government and addressing misinformation and uncertainty around cryptocurrencies.
DB: What sparked the idea for LoyaltyX?
Shelper: I worked for Qantas Frequent Flyer for four years from 2008, before leaving to launch my own loyalty management consultancy, Loyalty & Reward Co, which focuses on designing loyalty programs for big companies such as Optus, HOYTS, Dan Murphy’s, HCF, El AL Airlines and Sportsbet.
Having spent years researching loyalty programs, I realised most of the innovation in the loyalty space is focused on doing the same thing slightly better. In the 1700s, merchants in the US provided customers with copper tokens, which they could redeem for a reward. This was replaced in the 1800s by tickets, and then by stamps. Stamps dominated as the main loyalty currency until the 1980s, when frequent flyers programs introduced miles and points.
LoyaltyX was created to focus on true, industry-changing innovation, hence the name, which is short for ‘Loyalty Exploration’. We believe cryptocurrencies have the potential to unseat miles and points and become the new dominant loyalty currency of our times.
DB: Who are you targeting with your solution?
Shelper: We’re currently in advanced negotiations with a number of retail chains in the UK, where we’ve landed seed funding from two significant investors, with plans to run an Initial Coin Offering (ICO) mid-year, then launch a full coalition program before Christmas. We’re starting with mid-level retailers (50-200 stores) and will work our way up from there.
From a consumer perspective, our research indicates the program will appeal to young and old alike. We also believe loyalty programs will play a critical role in mainstreaming cryptocurrency adoption in two ways. Firstly, members only have to go through a simple, familiar registration process to start earning, with no need to create a cryptocurrency wallet. Secondly, members can enter cryptocurrency ownership without having to invest any of their own money, which de-risks their participation.
DB: How does membership reward consumers?
Shelper: Our solution has two elements in this respect…
The first is the blockchain loyalty component, where members earn a cryptocurrency instead of loyalty points when transacting with a coalition of retailers. They can then redeem with the same retailers, or trade via a digital exchange for another cryptocurrency.
The second is the blockchain marketing component, where members have control of their personal data and are able to exchange it with their favourite brands and be rewarded with cryptocurrency. Our members won’t be bombarded constantly with marketing emails they don’t wish to receive, but be able to choose whom they hear from, and allow the brands to use their personal data and tailor the offer specific to them as an individual.
Suffice to say, we’re reinventing loyalty and marketing simultaneously.
DB: What problem does your startup address?
Shelper: We’re harnessing cryptocurrency to solve three key problems inherent in points programs:
- Points and miles are restricted to specific product ranges whereas cryptocurrencies can be spent anywhere.
- Points and miles expire (a feature designed to boost the profits of major programs) whereas cryptocurrencies don’t.
- Points and miles have been observed to decrease in value to reduce the liability of large loyalty programs whereas cryptocurrencies have the potential to increase in value as their popularity rises.
Cryptocurrencies are a ‘community play’ meaning the more retailers and members involved in the program, the greater the demand for the cryptocurrency, and the more it increases in value, benefitting everyone.
In essence, cryptocurrencies have the potential to deliver greater value to members than points, which is the primary driver of engagement with a loyalty program. Members join a program because they believe they’ll gain value from doing so, and they continue to engage with a program because they perceive they are gaining value. The more value, the more engagement. The more engagement, the more profitable the member is to the retailer.
DB: How did the TechVoucher grant assist you?
Shelper: The TechVoucher grant was instrumental in providing us with the funding required to run the trial. It was used to invest in equipment, UNSW resources, promotion of the program and completion of the research paper. While many governments around the world are doing their best to disrupt the rapid evolution of cryptocurrency usage, it is exciting to see the NSW Government investing in world-first cryptocurrency research. Only by conducting good-quality research will we truly understand the potential of this new technical innovation.
DB: What ambitions do you have for LoyaltyX
Shelper: LoyaltyX aims to be a company that facilitates mass market cryptocurrency adoption. By making it easy for people to earn cryptocurrency in a de-risked way, consumers will be provided with their own opportunity to determine whether it is for them or not.
At present there’s a great deal of uncertainty, mis-information and polarised opinions about cryptocurrencies. We believe providing mass consumers with a crypto-balance and allowing them use it in everyday transactions is the best way to facilitate education and acceptance.