Company profile: Currency Alliance
Exchanging ideas on extending loyalty collaboration
In conversation with Charles (Chuck) Ehredt, CEO and co-founder, Currency Alliance
Loyalty Magazine: Explain what Currency Alliance is
Charles Ehredt: Currency Alliance operates a technology platform to make it much easier for merchants and travel suppliers to connect with business partners to issue or redeem the same loyalty currencies, as well as enable the exchange of loyalty currencies. We are the ecosystem that creates more liquidity with loyalty point currencies so they are more appealing and attract engagement from customers. In this way we aim to reinvigorate participation from both frequent and less frequent customers in loyalty programmes.
How does it work?
Currency Alliance operates a highly flexible and robust platform with specific functionality for the management of loyalty programmes. We offer a loyalty programme management system and a global digital currency for those without a currency or system they like, but our core business and strongest value proposition is to enable cloud-based loyalty currency management and low cost loyalty transactions between authorised partners. Some partners have integrated in as little as 3 days.
Why is a system such as Currency Alliance necessary?
Markets must evolve with maturing technology and changing customer behaviour, but not every market has kept pace. This is especially so for customer loyalty. The thousands of programmes a customer can choose from look fairly similar. Rather than producing mass adoption, the proliferation of programmes is leading to increasing customer apathy where all parties are losing. We believe one of the next major evolutions in retail will take place in loyalty because various technologies are converging to deliver tailored customer service – but if 70% of customers are not engaged, the brand will miss most of the benefits from this wave of innovation.
What are your views on customer loyalty as it operates today?
I don’t think giving points or miles actually generates much loyalty. At best, it creates a degree of ‘lock-in’. Offering points is often expected in exchange for giving up personal data, but more importantly, it is the opportunity to start a dialogue through which a brand can try to build affinity. Real loyalty is built through providing a consistently good experience and delivering overall value. Points have a cost (liability) to the programme operator, but only have perceived value to the customer if they can do something interesting with them. Too often, the customer has too few points to do anything interesting. We help change that.
How can Currency Alliance improve this situation? Surely pooling rewards lessens the loyalty effect?
Not at all. If a customer knows that they can achieve a redemption of their choice, then they are more likely to collect, save and value the points in the first place. If a customer becomes disenfranchised, and doesn’t even bother to identify themselves at the point of sale, then companies can’t learn about the customer or their preferences. Participation levels are surprisingly low. Enabling greater liquidity can double or triple customer participation.
What about online commerce?
Amazon will eat the lunch of any company that is not learning from data. We can help with this understanding. And coalitions, as we have known them, are not the answer. The coalition operator is taking too much value from the ecosystem and is often dominated by one partner. If you look on their balance sheet, the value they are giving to points is considerably less than what they are charging to partners in the network. The customer should get this value, not the intermediary.
How does your Currency Exchange marketplace operate?
It is the companies exchanging the points that determine the value of their loyalty currency. For example, you might allow a customer to exchange your currency at the full economic value for a charitable contribution, but want to earn a 20% margin on exchanges with ‘friendly’ partners, or a 50%-80% margin on exchanges with competitors. You can block any currency from being exchanged with yours and you might choose to accept exchanges into your currency from many programmes, but severely limit the programmes into which your currency can be exchanged. Our partners retain full control, and can get liability off their balance sheet at a profitable cost.
Won’t most companies, and especially the CFO, decide that it is better economics if points are expired, rather than exchanged?
It is easy for the CFO to believe that breakage is a good thing, but it is a massive de-incentive to expire points. Customers hate it. Additionally, new accounting standards, namely ASC 606 in the US and IFRS 15 will lead to major changes in accounting practices for loyalty programmes. The CFO and CMO will become more aligned. I am also convinced that breakage depresses overall programme ROI because the majority of customers do not bother participating.
How near are you to going live with your platform?
We launched the business in March 2016 after a long period of preparation. Clients have been integrating since October 2016. We now have a system that is mature and very intuitive. Our initial plan was to have just one currency – comcoin – but we realised very quickly that most companies would prefer a multi-currency system to manage their own currency. So we have adapted it so they can benefit from our technology while managing partner networks with their currency.
Are you planning to handle customer data, as well as the points transactions?
I don’t believe a big retailer will use our system for their data analytics, but small and medium sized companies who can’t afford sophisticated analytics and marketing systems could benefit hugely from our SaaS-based software. Establishing and maintaining customer loyalty is all about the delivery of personalised touchpoints.
What are the Currency Alliance charges?
We are transparent about these. We charge a 2% fee to issue or exchange loyalty currencies, but nothing to the customer or during redemptions. There are no charges for implementation and maintenance – or monthly minimums.
Will blockchain play a part in your platform?
Blockchain will be transformative, like HTTP or the internet itself. It will have a massive impact in the next 5 to 10 years. But it is still in the ‘hype’ phase. The banks are in front with their learning, and are beginning to work out where the standards will be needed, but currently there are 100s of side chains that are not compatible. To stay up to date with the changes you would need to be refactoring code every few months. We are copying transaction data onto a blockchain periodically to avoid high operating costs, but we will provide a bridge to our clients so they can embrace blockchain when they are ready, and more importantly, when there are trading partners they can do business with. We are talking to all the major players and alliances, and intend to be one of the leaders as blockchain matures.
Can you talk through your security measures?
Our philosophy is that customers and merchants own their data, so no-one else should have access to it without permission (like GDPR). Our system architecture consists of three layers. The top, public layer is for API and Portal access to the platform, then below that sits a middle layer that fully separates the encrypted data from public access – so only our internal algorithms can access the data. We are completely compliant with current data regulations and those soon to be imposed.
What reservations and objections are you hearing about your solution?
The first was the currency, but we have fixed this by becoming multi-currency. We are facilitating a natural evolution of the market by enabling greater liquidity with loyalty currencies – in order to attract more engagement from the mass of people who are currently not active.
Some people say: “There is no way in hell I am going to share data” – but you only learn when a customer buys from you. We can help assemble rich customer profiles based on everywhere they shop.
Won’t some companies argue that they should only be focused on high spenders?
I had over 100,000 points expired the other day by a major hotel chain because I was two days late in using them. This was a completely dis-enfranchising experience. It is not just low-level customers that are being expired. A company can learn a great deal from those who are lower spenders. Knowing who ALL your customers are is a desirable goal. And, many of those low spenders are actually high spenders (with the competition).
How big a business could this be?
We estimate that there are US$500bn in loyalty points sloshing about in the market. About half of this value is held by mid- and long-tail customers who will struggle to redeem. This is a massive missed opportunity in customer interaction that we believe we can put right by helping our clients make their existing programmes and loyalty currencies much more valuable.
This article was first published in Loyalty Magazine in November 2017.