Dominic Hofer believes loyalty programs work better when the perk "follows" consumers. In other words, when the consumer doesn't have to seek out a specific retailer to cash in on the reward - he or she can redeem anywhere. This makes smartphones a vital tool to spread his firm's model of turning loyalty points into cash that can be used at a variety of online and brick and mortar retailers.

Hofer is founder and CEO of PointsPay, a subsidiary of Loylogic, a Zurich-based global exchange and clearinghouse for virtual currencies. PointsPay recently launched a new mobile app that lets loyalty points and miles be instantly redeemed at the point of sale at almost any merchant in any currency, rather than tying points or loyalty programs to a particular retailer. It's a growing trend of using mobility to enable real-time redemption and to allow more flexibility in turning rewards into cash — a market opportunity that's attracting firms such as American Express (AXP) and Edo Interactive.

"We're connecting card members with virtual currency with merchants that accept the cards," Hofer says.

PointsPay's app works like this: consumer members of participating loyalty programs load their points or miles via the PointsPay mobile app, which can be downloaded from iTunes onto a PointsPay prepaid Visa or MasterCard plastic card or a virtual card. Members select an amount of points to load onto the card and, based on a conversion rate that's part of the loyalty program, pay as if using cash, choosing from more than 150 currencies and 30 million retailers. There's a time limit of 24 hours for redemption, and any unused cash is loaded back into the consumers' miles or points account. "You can redeem at any point of sale in the world, online or at a store, or anywhere in the Visa or MasterCard network," Hofer says. The fee is about $0.99 per transaction.

Hofer says PointsPay turns the loyalty model "on its head," by enabling points and miles to follow members as they travel and shop, rather than the members having to seek opportunities to redeem points. The firm hopes this will result in loyalty programs getting used more frequently. In the U.S. alone, more than $16 billion, or 33 percent, of loyalty programs, goes unused each year, according to Colloquy and Swift Exchange.

One participant in the PointsPay program, Etihad Guest, the rewards program from Etihad Airways, the United Arab Emirates' national carrier, said it issued about 1,500 virtual and plastic cards and loaded 50 million miles within a few days of launch. "The points are fed into the payments network, and the cardholder and their issuer benefit from new money," Hofer says.

The new app drew mostly positive reviews from the analyst community. "There is traction [for the PointsPay model]," says Beth Robertson, director of payments research at Javelin Strategy and Research, who was less bullish about the multi-currency feature. "It's relevant to an extent, but not broadly relevant. There is a portion of a card issuers' portfolio that tends to be very affluent and frequently traveling internationally."

Other point of sale rewards include Edo Interactive's "Prewards," or virtual coupons redeemable via cards when used at a point of sale. Edo Interactive also has a geolocation product that provides offers associated with nearby merchants. Edo Interactive's clients include Fifth Third Bank (FITB) and Ally Bank.

And American Express' iPhone app includes "My Offers," which recommends and ranks merchant offers in real time based on spending history and location.

"Because of the mobile device's geolocation functionality and extension of travel rewards that are more relevant, we are seeing linkage to the point of sale ...so there's more likelihood of redemption," Robertson says.