Royal Bank of Canada is applying blockchain technology to its loyalty program, in an effort to make its rewards more tangible and accessible.

The idea is to distance the bank from longtime systems of using points as a stand-in for cash or products. The practice of trading in points at the end of the month adds friction to what could be a much more straightforward process, the bank says.

"We want the rewards to be pretty much the same as if you were using cash," said Eddy Ortiz, vice president of innovation and solution acceleration for RBC. "That allows consumers to see the value."

Eddy Ortiz, vice president of innovation and solution acceleration for RBC
Eddy Ortiz, vice president of innovation and solution acceleration for RBC Royal Bank of Canada

RBC, which last year began testing how blockchain could reduce the time between the presentment and redemption of payment rewards, is applying the technology to its point-based card loyalty program, called RBC Rewards, as a new feature.

The blockchain, which is a decentralized online record-keeping ledger originally invented for bitcoin, allows consumers to track and use points in real time, Ortiz said. The user's don't have to adjust to the blockchain, Ortiz said, adding the user experience is only changing by making rewards available much faster, and thus with more context to the consumer's current action.

"Enabling redemption in many places means providing many different connections from many different redemption locations to many different redemption programs," said Rick Oglesby, founder and president of AZ Payments Group. "It could quickly become untenable. However blockchain provides a shared ledger so the information can be made available broadly. This means that the many-to-many connections could potentially be reduced dramatically to enable broad adoption. It has solid potential."

The advancement is necessary to bring marketing up to speed with payments and shopping, which are increasingly digital and multi-channel, Ortiz said. By increasing the speed and security of transaction, RBC can receive information on the consumer, merchants and other actionable data, he said.

This in turn can enable push notifications at the point of sale that are more relevant and accessible, providing immediate discounts from RBC's app or updating an existing points balance, which can also be viewed in real time, Ortiz said.

"The rewards can be redeemed wherever digital payments are enabled," Ortiz said.

Lots of merchant acquirers, merchants, payment companies and issuers are reimagining customer rewards for the mobile age. Value-added marketing is considered key to the success of mobile wallets, and rewards programs have always been challenged to improve redemption, partly because the points-based programs are considered vague.

"Rewards are a bit clunky, and we want to make it more fun," said Chris Finan, founder of Manifold Technology, RBC's blockchain vendor for the loyalty project, saying the mix of notifications and real-time redemption employs elements of gamification to improve the user experience. "The client experience for traditional points goes off the rails when you are trying to use points from a credit card to buy a latte four days later."

Blockchain can speed that up by using the same concept that brought speed to trade settlement and cross-border transactions, Finan said.

"The legacy infrastructure at banks isn't built for this type of data movement. There's been a lot of interest in this for capital markets, derivatives and trading, but there are huge problems in the retail side the blockchain can solve," Finan said.

The Manifold platform, which is build on Microsoft Azure and claims a throughput rate of 10,000 transactions per second, has an advantage in its ease of use for enterprise users, according to Michael Moeser, director of payments at Javelin Strategy & Research.

"You don't need to be a blockchain expert to build an app on its technology," Moeser said, adding the process is similar to creating a website using WordPress. "The Manifold platform didn't require the bank to throw out legacy infrastructure."

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