Can Loyalty and Mobile Wallets Ever Mix?

Most mobile wallet providers and retailers have been hunting for the magic formula that would seamlessly blend loyalty and mobile payments, in the hopes that one would inevitably fuel the other. But it's a delicate recipe, and very easy to get wrong.

Starbucks can point to a successful, closed-loop mobile wallet and rewards program, and its secret was that it never considered rewards to be subservient to payments; the company continues to nourish its rewards and gift card programs independent of its mobile strategy. Walmart is following this example with Walmart Pay, a mobile payment system that builds onto mobile services such as its Savings Catcher price-matching system.

The earliest mobile wallet systems debuted with their own linked loyalty programs, but launching these systems side-by-side proved difficult. Google Wallet and Google Offers launched the same day, but their paths quickly diverged; Bling Nation's undoing was the company's expectation that merchants switch to its own loyalty system.

As mobile wallet technology has advanced, rewards have largely been put on the back burner. Android Pay, the successor to Google Wallet, cut out many of the features of its predecessor. Apple Pay treated rewards as an afterthought, letting merchants add their loyalty programs only after Apple launched its wallet at their checkout lines.

Consumers still like rewards, but they don't like changing their behavior. So perhaps it's time for more developers to put loyalty first.

As a company that has spent the last several years creating "transaction rails for the loyalty industry," Toronto-based Points feels it is in the right place at the right time, said Christopher Barnard, the company's president.

"Around the world, there are no rails for the loyalty currency," Barnard said. "For loyalty transactions to take place, it involves individual integrations with a bank’s loyalty system, and it’s very cumbersome to do the integration."

Points provides "transactional access" through the Points Loyalty Wallet software for wallet developers, banks or merchants seeking a way for consumers to earn and redeem points through a digital wallet without having to enroll in an entirely new system.

"A digital wallet with a card loaded that is tied to a loyalty program is already involved, but the key is to double down on that dynamic and drive customer value by offering the capability to use those loyalty programs through the wallet, rather than just to store them," Barnard added.

Meanwhile, consumers are increasingly accepting of the notion of having an "all-in-one-solution" when it comes to their mobile devices, said Jaclyn Holmes, senior manager of payments insights for Auriemma Consulting Group.

"We’ve seen it since day one with Apple Pay that they like the idea of loading everything onto the phone, so they can carry less physically," Holmes said. "If you can go a step further and offer solutions where redemption can take place with the digital wallets, that will be a huge value proposition."

Things appear to be moving fairly quickly with the rewards/loyalty aspects of digital wallet offerings, even though most still lack the capability for consumers to store, earn, redeem or exchange points.

In the past month alone, Google's Android Pay took an initial step in developing loyalty options in its wallet that would resonate with users by enhancing its Save to Android Pay application interface. It now allows consumers to add loyalty and gift cards to the mobile wallet through a link sent from a retailer, while also making it easier to enroll for loyalty or rewards programs in stores.

And Kohl’s, a retailer known for its prolific Kohl's Cash rewards and offers program, delivered an option to its customers to earn loyalty points when making a purchase with its private-label credit card through Apple Pay.

It was a significant move on the mobile loyalty landscape, marking the first time a retailer had combined the process of paying with Apple Pay and earning points through the tap of the phone on a contactless reader.

In addition, the payments industry is making more use of Host Card Emulation, a technology that allows the development of contactless payments without requiring access to the secure element. Just as this system has been used for mobile payments, it can also be used for loyalty transactions.

Still, most retailers are taking their time in determining the best approach to incorporate loyalty redemption and earning through a mobile wallet, Holmes said.

Even with the latest developments, Android, Kohl’s and Apple have not taken that key step that allows redemption of points at the point of sale, management of all loyalty cards and the option to make a purchase at one retailer and maybe earn miles from an airlines in the process.

The industry will want to watch closely as Walmart Pay moves into its next stages, Holmes added.

"At some point down the line, there will be some sort of value proposition added to Walmart Pay in which customers are getting a value beyond what another mobile wallet can give them," Holmes said.

Barnard wants Points to be viewed by potential clients in the same manner as a consumer would use PayPal as an alternative means of accessing a bank account or credit card.

Points does not operate a loyalty program, per se, but rather sets up a platform for the client to choose how to promote the ability to earn and use loyalty points when using the wallet, Barnard said. "We develop loyalty points as a virtual currency and the ability to distribute it through any third party channel’s digital wallet."

All of these developments take place against a backdrop of banks struggling to assure their current rewards business model can survive against other fee-based pressures plaguing financial services, such as ongoing fights over interchange fees that could ultimately affect bottom lines.

As such, companies like Points are challenged to demonstrate that their technology can generate more revenue.

"I think definitely the seed has been planted," Holmes said. "But the execution part is going to be a little difficult."