The loyalty industry is changing due to the integration of blockchain technology.
According to a PYMNTS Intelligence report, “From Transaction to Transformation: Blockchain’s Loyalty Proposition,” in collaboration with Solana, the loyalty market is projected to exceed $24 billion in revenue within the next five years, and brands are racing to tap into blockchain’s potential to create more flexible, appealing and profitable reward structures.
Blockchain technology is reshaping loyalty programs by offering more flexible and engaging reward structures. A key advantage for brands is the use of smart contracts — self-executing agreements that eliminate intermediaries, streamlining processes, reducing costs, and boosting profitability.
Tokenization, converting assets into digital tokens, is elevating customer engagement. It creates secondary markets where customers can trade, sell or rent their rewards, incentivizing participation and opening new revenue streams. Yuga Labs, an early adopter, has earned an estimated $150 million in royalties through tokenized loyalty.
Unlike traditional loyalty models, blockchain ensures data is secure, mitigating fraud risks through real-time tracking and personalized rewards. Its interoperability allows loyalty points to be seamlessly transferred across merchant ecosystems, as seen with Singapore Airlines’ KrisPay program, where miles are converted into digital tokens for spending with partners.
Smart contracts also enable real-time rewards and gamification. Visa’s Web3 Loyalty Engagement Solution, through interactive digital treasure hunts, changes point accrual into dynamic brand experiences, creating stronger customer loyalty and brand advocacy.
Younger generations, particularly Gen Z and millennials, are driving the demand for next-generation loyalty programs. More than three-quarters of millennials and 71% of Gen Z consumers consider loyalty programs vital for brand allegiance. But 41% of Gen Z consumers are not satisfied with current rewards programs, preferring nontraditional rewards. Consider 96% of millennials believe loyalty programs need a refresh with new ways to reward users.
Blockchain-based non-fungible tokens (NFTs) are becoming a popular loyalty channel for younger audiences, especially in entertainment, sports and the arts. Gen Z and millennials value unique experiences and exclusive access over traditional rewards, finding backstage passes, VIP access, or limited-edition products more appealing than cash back and discounts. By late 2023, 9% of Gen Z and 8% of millennials in the United States owned NFTs, indicating growing interest in these digital assets.
Blockchain technology allows brands to scale loyalty programs globally while maintaining personalization. By unifying real-time customer data across all touchpoints, blockchain unlocks opportunities for personalization. When coupled with artificial intelligence-driven analytics, this could lead to rewards programs that anticipate customer preferences.
Country music star Eric Church’s loyalty program illustrates blockchain’s potential to create digital proof of brand affiliation. Using Solana’s blockchain to issue “Founder Bricks,” Church recognizes his most devoted fans with exclusive rewards, including a symbolic stake in his Nashville venue.
As brands adapt to this new landscape, they must overcome misconceptions and resistance to fully unlock blockchain’s potential. Those who don’t innovate will find it challenging to build loyalty in a digital-first, experience-driven world. By auditing current programs, creating phased integration plans, educating customers, using data for hyper-personalization, and collaborating with blockchain providers, brands can transition to blockchain-based loyalty programs that meet the needs of consumers.
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