While merchants
The global card network this month unveiled the Visa Web3 Loyalty Engagement Solution, which enables brands to reward customers with "digital collectibles" and virtual experiences stored in
Visa's newest rewards program relies on
Virtual reality experiences — however compelling they may be with steadily improving technology — won't supplant cash-back rewards, perennially the most popular credit card reward option. Travel rewards through airline and hotel partners, which support some of the biggest co-branded credit cards in the U.S., are a close second.
But Visa's move is a sign of changes that are likely to come in the next several years in the way card networks and banks manage traditional card rewards, as merchants push back against the existing card rewards system and technology evolves.
"Cash rewards tend to be preferred by consumers, but if legislation like the
Visa's Web3 platform also anticipates new rewards-management technology including instant redemption and the ability to combine rewards with other offers to increase consumer engagement with brands, Riley noted.
"Rewards continue to be a driving force in payments, but as issuers face regulators that want to disrupt the existing models, it's important to look downfield for ways to adapt," he said, adding Visa is pioneering a Web3 rewards program that could take years to develop.
Most banks are unlikely to abandon popular cash-back card programs any time soon, and Web3 is so new it's not on the radar of most consumers, according to analysts. But Web3's foundation in digital technology fits into the rapid digitization of payments, said David Shipper, a strategic advisor with Datos Insights.
"Offering digital rewards makes a lot of sense with how consumers interact with the real and digital worlds, and Visa's idea could have legs if it's simple to use and consumers perceive the rewards as valuable," he said.
Digital rewards could also be created at a far lower cost than cash-back rewards. Combined with creative brand partnerships, issuers might find Web3 rewards to be a more practical way to reward consumers for debit card transactions, which can be costly to fund because the interchange rates for debit cards are significantly lower than credit card swipe fees, Shipper said.
To launch its Web3 loyalty platform, Visa has teamed with SmartMedia Technologies, a Carbondale, Colorado-based software firm that drives Web3 consumer engagement by distributing
"Merchants across industries can provide Visa cardholders with benefits and features that align best with their brand goals, such as gamified giveaways, digital coupons, event access or immersive augmented reality experiences," she said.
Visa has not disclosed any participating brands or issuers.
"Visa may have captured a sweet spot [by being first to exploit Web3 loyalty for card payments], Swaminathan said. But he suspects Visa has other motives for diving into Web3 to develop alternative card rewards.
"Potential revenue from Visa's Web3 initiative would likely be small, but I'm willing to speculate that Visa has interest in acquiring something in the crypto space and is using this Web3 initiative to dip its toes in the water," he said.
