As banks weigh blockchain-powered clearing and settlement solutions, Royal Bank of Canada is looking at how the technology can bolster its customer loyalty programs.
RBC regards rewards points as currency for its customers and works to ensure they're able to spend their earnings, said Linda Mantia, executive vice president of digital, cards and payments for RBC. But with current technology systems, it can take up to eight weeks for points to reflect in a customer's account.
"There's something very meaningful about what blockchain can do to address client experience," said Mantia, who has also helped lead RBC's innovation in areas such as payments executed by connected devices. "Sometimes things get overhyped, but it doesn't change that it will fundamentally change how banking operates going forward."
Banks have been investigating potential uses of the blockchain and its decentralized electronic record-keeping system, which was originally created for the digital currency bitcoin. After initially brushing off the potential of bitcoin and its underlying technology, a number of applications have emerged that have piqued the curiosity of banks – including clearing and settlement, reference data, collateral management, securities issuance, trade matching and confirmation and over-the-counter derivatives processing.
RBC is interested in the potential of a permissioned blockchain to bring real-time exchange for merchant partners and consumer clients. That would open the door to turning points into currency at the point of sale.
By implementing blockchain tech, banks can "quickly reconcile and provide real-time feedback and spending and redemption options, so rewards aren't just abstract points, but rather, individual and instantaneous incentives for every purchase," said Chris Finan, co-founder and chief executive of the blockchain startup Manifold Technology, one of the partners in RBC's blockchain efforts. Finan claims its technology can settle transactions in milliseconds, while Ripple can take 10 seconds and bitcoin takes roughly 10 minutes.
Loyalty programs are a significant driver of credit card use. They aren't heavily regulated; through its own, RBC has developed a network of merchant partners; and unlike collaborative industry initiatives that require various parties' agreement in order to progress, the bank can build at its own pace, making RBC Rewards more practical blockchain testing grounds for the bank, Mantia said. (RBC is exploring other blockchain use cases as a member of the R3CEV consortium, however, and is working on cross-border payments technolgoy with Ripple.)
In November, RBC's chief executive, Dave McKay, teased that the company could roll out its blockchain powered loyalty program sometime this year. Mantia did not comment on the timing, but said the pilot is making good progress. Of course, when it is deployed the blockchain feature won't be discernable to customers, but the advantages might.
"Our most avid point collectors will realize that right now, in the world of immediacy, we have a problem with the legacy systems that run a lot of rewards points," Mantia said. "You earn points all month, but you won't get to use them until the following month when they're posted into the account."
If the future turns out the way Finan envisions, customers will have the option to receive push notifications at the point of sale updating them on their rewards balances. From there they would also be able to spend their points directly from their bank's mobile app, apply them against a purchase to reduce cost of that purchase, or exchange with other types of points – instantly.
"This is where a financial institution can be running a points exchange. Redemptions become very easy," he said. "Think of banks' affiliate partnerships with airlines: incredibly painful, can take up to six weeks, the seat is gone, the flight is gone – imagine if it's digital currency you could exchange."
Manifold is building private blockchain technology for financial institutions, to make them more efficient and help them retain clients' trust, said Finan, a former White House cybersecurity director. This year it joined Microsoft Azure, the tech giant's blockchain-as-a-service program. It is also looking to improve one mobile service provider's cross-border reconciliation and settlement with blockchain.
Gamification and fun are important to clients, Mantia said, adding that this is one of her biggest takeaways from the 10-year-old rewards program. Points are "fun money" to customers, but where they collect points to transact is ripe for improvement. Trust, exchange of value and engagement will be crucial in how RBC builds on it.
"We've worked for 140 years on the trust side but even with something like points, you have to keep that trust going," Mantia said. "Loyalty can really improve our ability to engage clients more regularly and make them think that it's fun. … There's never going to be a more exciting time for our clients if we do this well and take advantage of this technology."