Loyalty business on Fiat Standard
I’ve been at Mastercard for the past 10 years, in the San Francisco office, building card-linked offers solutions to drive merchant loyalty. It’s a great business, where cardholders receive merchant offers through their bank, giving them a discount if they make a qualifying spend at participating merchants. Here’s an example of a sample of these offers/deals from my personal bank account at Wells Fargo.
Offers stimulate new customer acquisition, reactivate lapsed customers, and increase spending frequency and purchase volume from existing customers. Overall, the marketing solution is very effective at stimulating incremental spending behavior, especially through credit card (some debit card) payment channels.
Enter Bitcoin
Bitcoin as a medium of exchange doesn’t get much attention, it’s meant to be held by Bitcoin users, and there’s understandable concern about taxable spending events, but let’s put those concerns aside for a minute, and examine the business opportunity of driving merchant loyalty to Bitcoin mints rather than fiat mints. What’s changing? It’s no exaggeration to say that Bitcoin completely transforms the value proposition to create massive economic surpluses like never before, with efficiencies and use cases that fiat currencies can never match.
Costs
Providing any fiat merchant offers program is an expensive undertaking, requiring a large and complex set of technologies and a team of people to: approve participating merchants, confirm the merchant contract, allocate offers to cardholders based on projected marketing budgets, detect eligible spending events, reward redeemed cardholders with statement credits, compile reports for merchants to demonstrate the effectiveness of the program, and reconcile bills. Most importantly, all consumer spending is directed to the most expensive (to the merchant) payment channel: the credit card.
Bitcoin Rails eliminates a significant number of steps in this process. Merchants can participate in a Google Adwords-like model through a self-service portal that relies on committing Bitcoin to fund their marketing budget in real-time (which can also be cancelled in real-time as well – something that is never possible with fiat offerings). The bank and card processor are no longer involved as gatekeepers in the overall solution; they, and their associated costs/fees, are dropped from the value chain entirely. Most importantly, all refund transactions are now driven by the low-cost Lightning Network, eliminating not only the direct costs of credit card fees (typically 3% or higher) but also the indirect costs of chargebacks and fraud.
New models
Penalties on fiat transactions mean that consumers who participate in their bank’s merchant offer program typically receive no notification at the point of sale that they have successfully redeemed their discount, and the discount itself does not appear as a balance on their statement until days later. A bank could invest in an offer redemption solution that sends real-time notifications, but doing so is very expensive, complex, and has to be done on a bank-by-bank basis; very few banks do this, and there is no universal protocol to leverage.
The merchant must fund paper offerings in advance through pre-funding of a committed budget, or payment is followed up through a typical “30-day” credit agreement, backed by contractual obligations.
Bitcoin has completely turned these old frameworks upside down. Consumers can not only receive money notice In real time at the point of sale when they take advantage of a genuine Bitcoin offering, for the sensory peace of mind, but they Get the discount In real time too. Not only that, but “split payments” are powered by technologies like LN Bits and Bolt 12, where the original Bitcoin offerer/company can also receive payment in real time at the same point-of-sale event. This makes the paper “billing” step obsolete. Merchants can also change offer values, minimum spend thresholds, and most importantly, barren I look forward to hearing more about the remaining offers/discounts (marketing budget) they are willing to commit to in real time; it is impossible to make such changes via fiat channels that require budget commitments weeks in advance. I am only beginning to scratch the surface of the long list of unfair advantages that Bitcoin brings to the table by providing a merchant offers program, but I will leave it at that for now.
Reservations
Reach: The offering is essentially a two-sided market, and it is important to have as large an audience of consumers as possible to make merchant participation worthwhile. The Bitcoin audience, and what I call the “Bitcoin-interested” audience, is still a relatively small, though growing, segment.
Targeting: Fiat merchant offers have a magic bullet that is not currently available on Bitcoin, at least not directly; the consumer transaction history. This history allows the merchant to carefully spend their marketing budget on specific consumer segments such as new, lapsed, and loyal groups. It is an invaluable tool for ensuring the highest return on ad spend (ROAS) and also enables the creation of before and after test reports to control “creepiness,” proving that the increase in marketing campaign spend is very compelling and useful for merchants who need to justify spending money on offer campaigns.
However, I would argue that these warnings are mitigated by the potential for merchants to attract, even on a large scale and in an untargeted manner, the Bitcoin user segment, which is extremely valuable; tending to favor wealthy, influential, and insanely loyal Bitcoin pro-merchants. There is a proactive advantage for any merchant in their sector/category to attract this valuable segment first.
This is an example of how Bitcoin has removed costs from the legacy system like never before, unlocking much higher margins for merchants and providing a more immediate, real-world and satisfying experience for consumers. No competitor operating on fiat bars can replicate this long list of unfair advantages offered by Bitcoin’s original merchant offerings. This is based on my experience over the past 10 years working on CLO merchant loyalty programs.
“Buy Bitcoin and wait,” says Michael Saylor. For many of us Bitcoiners, we have the opportunity not just to “wait” but to proactively help drive Bitcoin overuse. I’m taking this step with merchant offerings, leveraging my experience and expertise to bring Bitcoin’s original offering to life. I’m curious about what other Bitcoiners might discover in terms of significant cost savings and new, unique use cases by reflecting on their fiat mining experience and reimagining it through the lens of Bitcoin.
This is a guest post by John McCabe. The opinions expressed here are entirely his own and do not necessarily reflect the views of BTC Inc or Bitcoin Magazine.