The move by Singapore Airlines to launch the world's first blockchain-based airline loyalty digital wallet is a well calculated move that brings many benefits to both its customers and its investors.
For consumers, a loyalty program that is based on blockchain could be more valuable than a regular miles rewards programs for several reasons. Normally, rewards programs limit how members can redeem their points, with blackout dates and other limitations.
Not only that, loyalty points also tend to depreciate in value over time due to inflation, changes in loyalty programs and even expiration. Instead, the newly proposed alternative has the potential to address both of these issues.
First, they would be flexibly interchangeable with other digital currencies, programs or money. Secondly, the market could decide the value of these tokens, which would create the potential for value appreciation.
Cryptocurrency loyalty program: benefits for companies
On the flipside, the newly proposed alternative has even bigger benefits for the company and its investors. Traditional rewards programs were effectively discount programs that cost companies a lot of money. For example, it would cost Singapore Airlines and extra seat every time a customer decided to redeem his miles for a free flight. This is a pretty big cost center for Singapore Airlines, which carries over $700 million of deferred revenue due to the outstanding miles waiting to be redeemed.
However, that would no longer be the case with a blockchain based loyalty program. If a customer redeems 50,000 miles for a business class seat, for example, the company could then immediately sell the miles in the market for an equivalent amount of cash. This implies that the traders of Singapore Airlines's "miles cryptocurrency" would be funding the company's loyalty program (or a discount marketing campaign), reducing the firm's financial burden to basically zero.
That's not all. Combined with the aforementioned benefits of these loyalty tokens, the lure of earning a free "altcoin", which many view as a form of alternative investments, while shopping at these stores could attract consumer attention and attract more customers to fly with Singapore Airlines. The launch of this program through an ICO would also mean that Singapore Airlines could raise more capital by either selling its own miles (or tokens) in the market, or by issuing more stocks if and when their stock prices rebound.
Why other companies should follow suit
We believe many other types of companies like hotels, retailers and credit card companies could enjoy the same set of benefits that we discussed above.
Regardless of the business, all loyalty programs work in a similar way. All reward miles and points can only be used in a certain way, and they all cost significant amount of money for the companies.
If successful, an ICO-financed loyalty program could could be the lifeline that many retailers and hotel chains could appreciate in face of competition from online players like Amazon and Airbnb.
Duckju Kang is senior vice president and head of Asia at ValuePenguin. This article originally appeared on ValuePenguin.