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In December at the Hyperledger Global Forum in Basel, American Express was the most significant non-technology company to share details on its blockchain applications. The cost of running the rewards program is the single largest cost of American Express to $ 8.7 billion in 2017. Considering how important rewards are for the company, the company has recently stepped up the program to make it more flexible. . So the blockchain reward project solves a real business need.
Today, customers earn points based on total transaction costs. The retailer may want to use rewards to target a brand or product, a particular day of the week, a customer profile, or something else. But until now they have not been able to do it.
The appeal of the prizes
And keeping the rewards program attractive is important. American Express has a premium brand with members who spend a lot and appreciate the prizes.
In 2017 American Express averaged $ 9,619 spent per card. And its base proprietary cards almost double the throughput at $ 18,519. Unlike Visa, where cardholders spend $ 3,351 a year (Mastercard: $ 2,870) and after deducting cash withdrawals, the figure is only $ 2,443 (Source: Visa annual report).
As an integrated global payments company, American Express differs from Visa and Mastercard in that it operates both as a bank issuer and as a commercial buyer, in addition to processing transactions. Visa and Mastercard do not advance their money, so instead their partner banks earn interest.
But it was not all simple navigation. At the beginning of this year, American Express has abandoned its "coalition loyalty activity" in the United States, known as Plenti. The idea was to get the awards earned in one sector and spend them in another sector. So consumers could earn rewards on groceries and use them at Macy's.
It was fantastic for consumers, but according to PYMNTS.com it was not a good deal for Macy's and other dealers. In particular, it did not direct traffic to stores. Thus the merchants started to withdraw and the program was closed. In some ways the blockchain solution is the opposite of Plenti.
Flexibility
"What traders want is the flexibility to reward or incentivize the right behaviors," said Michael Concannon, VP of Technology at American Express. "At this point [outside blockchain] they are only working with the entire transaction level and are unable to reach the incentive level of specific behaviors or targeting specific customers in their channel. And this is what allows ".
The first blockchain solution partner was Boxed's online wholesale retailer who presented a pilot project in May. Today his website offers 5x or 10 American Express reward points for selected products. Another example is Exxon, where customers were offered 3 premium points on premium gasoline.
Travel and entertainment are an important area for American Express and in 2017 accounted for 23% of card spending in the United States. His cobrand card with Delta accounted for about 8% of sales invoiced in the same period. So it's not surprising that he already has a blockchain partner on the road. RocketMiles allows travelers to earn rewards on hotel bookings and the customer selects the desired rewards program. The hotel site is part of the Priceline group now called Booking Holdings and also has Booking.com, OpenTable and Kayak.
In addition to these three examples, American Express has a pipeline of traders that is undergoing onboarding.
"We are launching soon with a non-transaction-based reward of points, in which they are only assigning customers to activities, and this is a major differentiating factor from what we could do today with loyalty reward systems that are limited by source of data that are only transactions ".
In addition to flexibility, the use of a blockchain provides transparency, so both the merchant and American Express see the same data that is immutable.
How does it work
American Express developed the in-house blockchain solution using Hyperledger Fabric. The company is a member of Hyperledger that is part of the Linux Foundation.
The blockchain does not record personal information such as the cardholder's name and card details. Instead, American Express emphasizes the data. When a consumer makes a purchase, the blockchain stores the associated transaction details. This information could be an SKU product, a time of day or whatever the retailer chooses and these details can be used as triggers for the smart contract.
"The intelligent contract creates and assigns points", specified Concannon. "Then we act as an exchange that takes those points and puts them in the backend loyalty systems, so we will reverse the token search and find the cardholder's account and then insert those points into their account in our traditional system of loyalty. "And the merchant receives costs from existing systems.
Hyperledger Fabric has a channel concept similar to a mini blockchain. Each merchant has a separate channel so that traders do not see each other's transactions. "Our attraction for Fabric, in general, was that we could solve all our privacy problems by creating an individual channel for a trader," said Concannon.
Recent versions of Hyperledger Fabric include additional privacy options, including Zero-Knowledge Proofs, which allows you to answer questions without revealing detailed information. For example, answering a question about whether a transaction included a particular brand or not without disclosing all the details of the transaction. "This opens up new privacy options for us, and we hope this will allow us to expand the program to match the merchant's integration type." But for now, the magnification is using a merchant channel.
Traders working with brands
Ledger Insights had previously speculated on the "cross-merchant integration" opportunities for brands. Unilever or Nestle could approach the American Express and launch a promotion on multiple retailers.
But Concannon stressed that the attention of American Express is the retailer: "We have established a relationship with the trader.This program is about allowing them to have new skills.Therefore, even if we do not work directly with any brand, we now have the possibility for traders to have this relationship. "He also clarified while there is room for interaction between brands and traders using the platform, which is not something that is happening right now.
Launch plan
Concannon noted that working with external partners (traders) using a technology that is emerging can be difficult. Some companies will be further along the blockchain learning curve of others. "I would suggest coming with the production launch plan," he said.
One aspect of the American Express plan was to reduce the level of coding required by merchants. The card company provided code and a software development kit that allowed the trader to run the software on the node and interact with it using a simple web services API.
In addition, American Express has provided more hosting options. The most advanced traders can host their own nodes. An alternative is "white glove" hosting where American Express hosts the node and the merchant uses the Web services APIs. Also, there is the intermediate option of a model hosted on the cloud, where American Express can help the merchant to accelerate on a node controlled by the merchant.
One of the company's current strategies is to become essential in the digital life of its customers through technology, and blockchain is one of those technologies.
The awards initiative was not his first blockchain project. A year ago, American Express launched cross-border business payments with Santander UK using Ripple technology. "It's going well", commented Concannon. "It has the potential to expand to more banks and more currencies, and we are studying this."
There is the impression that there may be quite a bit of competition for that energy. As with most large corporations, the company is eager to not disclose what it is working until time is right. Concannon concluded: "We believe this technology allows many different use cases".
