Forget about Bitcoin or other digital currencies. Consumers already have an alternative to cash reward points and the fast development of mobile wallets will enable them to spend these points widely.
Indeed, Apple and Google have emphasized the use of reward cards in the latest versions of their mobile wallets. And companies like Walgreens already blur the lines between reward and payment accounts with products like the Balance Financial card.
The next phase is being able to redeem points at the payment terminal for any purchase, rather than wait until a certain balance is reached for a specific reward or statement credit.
"The mobile environment will be the first technology that will enable points to be used as a currency," said Bob Legters, senior vice president of product for Jacksonville, Fla.-based FIS, a banking and payments technology provider.
FIS is already providing technology with that capability, which eliminates "a bunch of work" for the consumer to do at the terminal to redeem loyalty points, Legters said.
Other innovations will resemble American Express' Plenti program, Letgers said. Plenti is a rewards program that works across multiple retailers, allowing consumers to earn points at one store and then spend them at another. Plenti operates as a plastic card instead of a mobile wallet.
"The retailers in the U.S. just couldn't grasp the concept of a third brand to represent multiple retailers, but Plenti is that first step," Legters said.
Earlier attempts to turn loyalty points into currency have been far more restrained. Dynamics offers a reprogrammable card that can spend from multiple accounts, and its earliest pitch was around allowing consumers to access a bucket of reward points at the point of sale. Online, Amazon.com allows customers to spend reward points directly on its site, but the cards that support this program typically award points only when they issue statements.
During the dotcom boom, companies like Beenz and Flooz urged consumers to exchange their cash for a digital currency that would work at multiple retailers. Beenz worked with a unit of Synovus Financial Corp. to offer a "rewardzCard" to use their Beenz balance in real-world stores. Beenz and Flooz both shut down by mid-2001.
The concept of multiple retailers in a single loyalty program, combined with a mobile wallet storage and delivery mechanism, would be the building blocks for rewards points becoming a viable currency for consumers, Legters said.
Even though it has not yet released a product or revealed a rollout date, the Merchant Customer Exchange is believed to be working on that premise, or a variation of it, in its CurrentC mobile wallet. MCX is backed by many of the biggest retailers in the U.S., including Walmart and Target.
"I think MCX will move on something soon, though they don't have to act as fast as others because the consumers are not screaming for an MCX solution," Legters said. "When they do something, it will be a powerhouse because they represent 75% of the transactions in the country. They will scale fast."
Most likely, MCX will lean on its individual members to provide rewards redemption at the point of sale through their own apps, said Richard Crone, chief executive of San Carlos, Calif.-based payments consulting firm Crone Consulting LLC.
"If you look at Subway's rewards app, it already has many of the features you need to monitor your program and determine redemption," Crone said.
Rather than having Apple or Google eventually become a third-party provider of redemption at the point of sale, most retailers will prefer to provide their own cloud-based wallet concept to manage the programs, Crone added.
"If Apple or others know when you used a loyalty card at a certain location, it possibly becomes part of their advertising program," Crone said. "A loyalty program operated through a third party intermediary puts that program at risk."
Starbucks remains a glowing example of a mobile payment and loyalty program combination that attracts users to the tune of 19% of all transactions taking place at the coffee mogul's U.S. stores.
But there is another payments piece to the Starbucks puzzle that should also have great appeal to retailers as mobile loyalty and rewards programs advance, Crone says.
"There will be many alternative currencies, or merchant-branded currencies coming about to build loyalty because of mobile, but establishing private-label prepaid accounts is also a big opportunity," Crone said.
Starbucks already holds more total deposits on prepaid accounts for its mobile payment scheme than many banks in the U.S., Crone said.
"The real value of rewards programs is when someone prepays in a spending account, because that money can't be spent anywhere else," Crone added.