Think online shopping and payments, and you most probably think of the stereotypical image of credit card details being entered onto a checkout page. However, in a surprisingly large number of markets, this isn't the case. Whilst credit and debit cards are prolific in many regions, there are just as many others where they are not. Within the world of ecommerce, paying online without directly using your payment card is known as using an alternative payment method, or APM. The growth in the use of APMs is an important trend that the loyalty industry should be following. There are over 300 APMs in use globally. These range from bank transfer-based systems such as iDEAL in the Netherlands or Sofort in Germany, to direct mobile carrier billing systems such as Boku, to e-invoicing services like Klarna.
In addition, there is another class of APMs that specifically rely on the customer having a payment card, but which provide a mechanism whereby the customer’s card details do not have to be given to the merchant – examples include PayPal, AliPay and ApplePay. PayPal is often regarded as the king of APMs. With over 200 million active users and accepted at over 750,000 online merchants, it has come a very long way since being voted one of the 10 worst business ideas of 1999*.
What the ubiquity of APMs clearly demonstrates is that there is an appetite for customers to pay online using the method which best suits them. Some are happy to just enter their payment card details. Others are wary of doing so, and hence use a service like PayPal or AliPay, which still charge the payment to their card, but avoid the need to share sensitive card data with the merchant. Some may prefer to avoid using payment cards altogether or perhaps simply don’t have one. That is why online banking solutions like iDeal or Sofort work well for them. Whereas increasing numbers prefer using a service like Boku and simply have their purchase charged to their mobile phone bill.
What these all have in common, though, is that they – quite naturally – rely on the customer having funds either in their bank account, or associated with their payment card. There has been a lot of hype in recent years about customers using different kinds of currencies altogether. Perhaps the most obvious example has been bitcoin. The idea of people using a digital currency like bitcoin to simply shop online is appealing, and there are many merchants today who accept bitcoin payments on their websites. However, for a number of reasons including price volatility and ease-of-use, it’s quite likely we won't be seeing bitcoin used for everyday online shopping anytime soon.
There is, however, another alternative currency out there today that has the potential to reshape how customers shop online: loyalty points. From airline frequent flyer programs to credit card points programs, the vast majority of us are members of, on average, six different loyalty programs. It's estimated that over 16 trillion – yes, that’s trillion – points are issued annually. Many of those points are redeemed as intended, for example when members use their points to buy flights, or redeem with the programs’ online reward shops in exchange for premium luggage or the latest noise cancelling headphones. However, many of these points also just sit there dormant in member accounts. In fact, our calculations suggest that over 48 trillion – yes, that's still trillion – points are sleeping unused in member accounts globally.
Why is this? There are number of reasons. I'm sure all of you can relate to the situation of having some points in an airline program but not having enough to actually buy a flight. What can you do with them? You're at the mercy of the airline's online reward shop, if there is one at all, hoping that you can find something on there to buy with the points that you have, and that you actually want. Some programs offer a fantastic amount of choice for their members in terms of redeeming their points, other programs are more limited. Regardless, there is a relentless drive within the industry whereby members of programs want more flexibility about how they can use their points.
This is a big headache for loyalty programs. All of these dormant points create a growing liability on their balance sheets. Furthermore, if members become unengaged and don't spend points, then what is the point? (excuse the pun). How can programs offer the choice that members are looking for when their core business is typically managing flights or issuing credit cards? Which brings us back to the APMs discussed earlier. There is growing recognition of the opportunity of letting members spend their loyalty points when shopping online. Not within the walled gardens of the loyalty program online reward shops, but freely and directly on merchant websites. Today Amazon already has its Shop With Points solution in the US where members of leading US credit card loyalty programs as well as members of the Hilton Honors program can shop online with their points at the mammoth retailer.
Tapping into this vein of opportunity, Loylogic has recently introduced its PointsPay solution. A simple payment button that merchants add to their checkout pages – next to Visa, Mastercard, PayPal and others – that lets members of participating loyalty programs make their purchase using their points. If the member doesn't have enough points, they can top up the payment with their payment card and even earn points by doing so. It's a win-win-win situation. A win for members as they get much more choice in what they can spend their points on, choosing from the latest and fullest range of products direct on merchant websites. A win for loyalty programs as it keeps their members engaged, minimises the costs of offering reward choices, and drives further earning of points as member satisfaction grows. And finally a win for merchants, who have their brand promoted to millions of loyalty program members and who can tap into a virtual currency that would be otherwise unavailable to them.
The roster of existing APMs clearly shows that consumers will seek the most convenient and flexible way to pay that benefits them the most. Could paying with points online become the next disruptive force in ecommerce payments? There are 48 trillion reasons to think so.
Akif Khan is Head of PointsPay
Loylogic is the world's leading innovator and creator of points experiences, insights, commerce and engagement. By tantalizing members with more choices and arming programs with insights on behavior – anticipating both present and future needs - we deliver powerful solutions that amplify engagement and build loyalty. For more information please visit loylogic.