Forbes Technology Council

‘Pay With Points’ Enhances The Online Shopping Experience With Direct Integration

As CTO of Engage People Inc. Len Covello helps companies differentiate loyalty programs to deliver a better experience for their customers.

Published January 19, 2021, 7:10 a.m. EST

As pay with points (PWP) — a loyalty program feature that converts points to currency to be spent during the online checkout process — gains wider adoption in global retail, ambiguities persist about just how accurately some rewards vendors are representing their points capability.

Based on what we’ve seen after acquiring programs from legacy providers, most simply redeem accumulated points by issuing virtual gift cards. This adds friction and delays for every actor in the payment chain from financial institutions (FIs) to merchants and consumers.

But a few loyalty solutions are sophisticated enough to mint convertible virtual currency out of accumulated points. By doing so, these solutions make it easy for loyalty program members to pay with points during the online check-out flow without thinking twice. It’s like reaching for a credit or debit card. PWP technologies are paving the way for more spending flexibility by putting purchasing power back into the hands of the cardholder.

“In the current environment, two-thirds of Americans (66%) now view these rewards balances as a way to buy the things they need such as groceries and other essentials,” said Jill Cress, vice president of consumer marketing at PayPal.

Valued as a $200-billion-per-year industry, some $100 billion in loyalty points go unredeemed annually, according to the latest research. What’s more, PayPal found in the same study that 39% of credit card rewards holders are “unaware of their rewards balances.”

Thus, enhancing transparency, awareness and the ease through which consumers can spend loyalty points online could help retailers capture revenue streams that may have become more illiquid than usual.

For card issuers, viewing points as currency holds real value.

In a recent interview with PaymentsSource, Zachary Aron, a Deloitte principal and U.S. banking and capital markets consulting payments leader, said that enhanced loyalty redemption will help credit-card issuers “benefit from an improved customer experience” resulting in “improved loyalty from turning credit card rewards into more useful currency.”

Additionally, a Deloitte survey of 2,520 U.S. consumers published in February 2020 found that the ability to repurpose credit-card rewards points at multiple retailers was one of the top three benefits participants cited as a desired loyalty feature. Furthermore, “one-quarter of consumers surveyed are willing to switch their credit card provider over the next two years to obtain better rewards elsewhere. In particular, younger consumers — 34% of Gen Z and millennials — are even more likely to switch,” according to Deloitte.

But how can card issuers and online merchants monetize loyalty points more effectively? That’s the $10 billion question.

Load up the shopping cart.

In practice, deploying this type of solution entails the integration of PWP architectures into the shopping-cart interface of e-commerce merchant terminals. This way, consumers can use their points as a payment option at checkout as easily as they’d add a credit or debit card.

The integration of PWP systems is predicated on open-banking technology in the form of APIs. The nimble, cloud-native software solutions can help both FIs and online merchants — retrofit the issuer’s back-end and the retailer’s checkout interface for virtual currency settlement — without having to rip out existing payment rails and rebuild over them.

With the advent of APIs and lightweight integrations in the cloud, leading loyalty fintech providers have made loyalty-points programs more convenient, frictionless and interoperable than ever. Via aggregated merchant payment networks — like those fashioned by American Express and Mastercard, for example — consumers can now repurpose accumulated loyalty points throughout a vast universe of retailers, online and otherwise.

Last year, Mastercard partnered with Citi to release a Pay With Points mobile app that enables consumers to redeem their rewards across categories like dining, grocery, gas, clothing, utility, entertainment and drugstores. Amazon and PayPal have pivoted toward PWP-type offerings, as well. While the former has been “prompting members to link their favorite rewards cards to their Amazon Prime accounts” to enable frictionless points payments for eligible cards, PayPal added a similar feature in June that converts and applies loyalty points as currency when a customer checks out.

These types of programs put purchasing power back into the hands of consumers, which is something particularly meaningful during the current global pandemic. This can be achieved by putting the consumer at the core of your program. Start from the perspective of the consumer. Look beyond acquisition and think about the journey. Invest in making the program convenient and frictionless. Revamp your channels, platforms, communication tools and content, and assign the resources to gain the greatest impact. Finally, always be innovating. Think about redemption beyond discounts to increase engagement and connection to increase lifetime value. Static is not an option.

Fintech improves loyalty.

Before the 2020 holiday season, e-commerce sales were anticipated to surge almost 36% over 2019 to top $190 billion. A robust, digitally convertible loyalty experience will help retailers optimize seasonal revenue capture. To this end, next-generation fintechs can help both FIs and merchants make the quantum leap to maximize the redemption and monetization of unspent consumer rewards.

Looking long term, as consumers continue to feel the economic strain of the pandemic, banks and retailers must adjust their traditional view of loyalty programs as a merchant add-on and recognize points as true currency — like taking cash out of a wallet.

With the power of open banking and API technology, fintech providers specializing in the loyalty economy can help every actor in the transaction chain maximize the value of brand loyalty this holiday season and beyond.

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