It is quite difficult to make the connection between customer loyalty and cryptocurrencies because the current focus in the market is whether or not cryptocurrencies and ICOs are legitimate or not. Retailers are deciding whether it is worth the currency and tax risk to accept bitcoin in their stores. Because this conversation is top of mind, business owners are missing the opportunity to utilize cryptocurrency technology to create more customer loyalty and increase revenue. The current payment and rewards infrastructure is hurting retailers with increased costs, limited data, and an inability to customize to meet customer needs.
The technology behind cryptocurrencies, Blockchain, can be customized to not only improve payments, but also align customer and retailer values. The Blockchain is a completely new infrastructure that eliminates the risks and lowers the costs created by the current Visa/MasterCard payment network. The technology enables a more secure, transparent, data driven, flexible and efficient way to complete any kind of transaction in person or online.
Blockchain, along with other more established web-based technologies, can help both online and brick and mortar retailers leverage the tools that the most successful brands have been using to drive success. Using these tools to align your values with the values of your customers can help you communicate your value proposition more effectively, create loyalty and drive customers to make purchases in the local community.
The Relationship Between Blockchain & Cryptocurrencies:
Cryptocurrencies have taken center stage in the news and on social feeds around the world. The ups and downs of the market have alerted the average investor to the new asset class and what it could mean to investment portfolios. Regulators and corporations are trying to understand how to work with cryptocurrencies without stalling innovation. What has not yet been addressed is what impact cryptocurrencies will have on daily commerce. 2016 saw over $30 Trillion in digital transactions globally and the number is expected to grow every year. With this volume of commerce being done with debit and credit cards, the question becomes, how much of global digital commerce will move away from credit/debit into cryptocurrencies? The answer is, it does not matter.
The reason why it does not matter is, it is unlikely that any cryptocurrency is going to capture a majority of the digital payments market. The top 5 cryptocurrencies (Bitcoin, Litecoin, Ether, Bitcoin Cash, and Ripple) have enabled payments for niche businesses and industries but have not successfully impacted Visa/MasterCard transactions in any way due to latency, a lack of redundancy, no transparency and volatility. Both brick & mortar and online businesses require speed, redundancy, transparency and stability from their digital payment methods in order to consistently make real-time transactions. This is the basic requirement to meet customer expectations and complete transactions. Customers are better off using the status quo, the USD. This does not mean that you cannot improve on the USD.
By eliminating the uncertainty and instability of cryptocurrencies and continuing to make transactions using the dollar standard, it allows businesses to focus on what is important, reliable real-time payments. The infrastructure behind your favorite cryptocurrency is called blockchain. The blockchain technology uses decentralized ledgers to improve transparency, eliminate middlemen and remove the fraud risks created by additional transaction touch points and centralized technology platforms. In order to understand how the power of the blockchain will impact how we utilize the USD, it is important to understand how current digital transactions work.
Why The Current Payment Infrastructure Isn’t Helping You Grow:
Online or in-store credit card payments can include up to 30 different parties to complete a transaction and settle an account. Each one of those parties takes a cut of the transaction and creates a potential access point for hackers. The number of organizations involved and security risks created drives the price up for merchants and consumers. Small business and high risk merchants are especially susceptible to price gouging and penalties if they receive chargebacks. The current card associations have a monopoly on digital payment infrastructure and do not have the flexibility to adapt to in state or local community needs.
Although Visa is synonymous with credit card and debit payments in the US, they are simply the technological infrastructure necessary for the transaction to take place. The issuing financial institution evaluates your credit, sets the rate and supports the card. Other services confirm identity, credit limit, credit risk, contact information, provide security, etc.
For any given credit card transaction, there is at least one of the following involved in authorization and sometimes two or more:
- Card association: Provides infrastructure for payment process.
- Cardholder: Pays with credit card.
- Merchant: Captures credit information.
- Payment Gateway/ Point of Sale: Provides infrastructure to accept credit card payments.
- Sponsoring Bank: Gives processors access to their card association membership.
- Processor: Pays the acquirer and debits the card issuer account. Updates issuer.
- Acquirer (Merchant bank): Funds the merchant account.
- Issuer (Customer card issuing bank): Posts the transaction to the customer’s account.
- Issuer Consumer Portal: Customer receives statement from card issuer.
- Customer payment: Customer pays issuer with personal bank.
For each one of these parties and transactions, there is an increased cost and additional access point for hackers:
In addition to having the various parties involved in the payment, there are other 3rd parties with independent centralized databases that provide:
- Identity proofing.
- Fraud prevention.
- Credit scoring.
On the blockchain, the transactions are confirmed by a network of independent computers. These are the parties involved:
- Sender: Requests payment.
- Receiver: Confirms payment.
- Blockchain network: A decentralized network of computers confirms encryption key, confirms unique transaction ledger/ account balance, completes transaction and updates decentralized ledger. Every aspect of the transaction and individual account is encrypted.
The current antiquated payment infrastructure has created an enormous number of silos with big databases and poor security. Each silo expects to get paid on their contribution to the process. Even though the costs and fraud continue to increase, these silos will not evolve until they are at risk of losing the enormous amount of revenue that they currently generate. Card-not-present transactions, which are transactions made without the credit card present, are up 30%. Credit card fraud, identity theft, and chargebacks are all increasing due to the enormous number of vulnerabilities in the current payment process. Every fraud that happens, increases the cost to the end consumer.
Fraud & Chargebacks Are Hurting You & Your Customers:
The reasons why blockchain transactions are able to eliminate so many middlemen is that encryption, crypto identity, and the account balance is built into a decentralized system where the account history itself is used as the identity. This data is stored on many different cryptographically secure computers, not on one central database. Each computer in the system has the same software and collectively confirms transaction information without the need for human intervention/errors. If done properly, it can increase the speed of the transaction while providing more stability, redundancy, security, and transparency.
By eliminating access points and removing publicly available information, the blockchain removes the most prevalent forms of fraud. Crypto Identities on the blockchain are not stored by one major database like Equifax, Transunion or Experian, all of which have been hacked. By using public keys to provide access to your encrypted account, individuals can control the information that is accessed by any other individual or organization. This removes the need for ever-changing credit card numbers which are readily accessible for sale on the dark web. By removing infrastructure access points at financial institutions and payment processors, there are no security risks that are vulnerable to hackers or malware. The only access point is through your crypto wallet which is stored on your phone or computer. Similar to a bank account, it is important to keep your access information and private encryption key private. If stolen, your entire account could be compromised.
The blockchain infrastructure provides new opportunities across various industries which we will not cover. Today, the concept of blockchain is foreign to most consumers and will take time to be incorporated into daily life. Similar to the internet, blockchain will create new models for any transaction requiring identity, currency, payment, contracts, loyalty, information, security, etc. It will impact industries that depend on multiple parties for oversight and centralized databases. It is easy to get lost in what the future holds, which is why we are focusing on how retail businesses operate today.
The New Age Of Local Business:
Businesses in 2018 require omnichannel solutions to attract and sell to customers no matter where they are. Traditionally, retailers started as Brick & Mortar businesses and evolved into online businesses. The transition from brick & Mortar has been challenging for many. Top brands like Toys R Us and Radio Shack have filed for bankruptcy partly due to the fact that they cannot compete with Amazon.com. Walmart acquired Jet.com for $3B in order to compete with Amazon.com. Meanwhile, Amazon.com has completely changed this paradigm with the acquisition of Whole Foods. Amazon has moved from ecommerce to brick & mortar and completely changed the game while doing it. In addition to the challenges associated with running both a traditional and ecommerce business, 23% of ecommerce was done through mobile devices in the US as of the end of 2017. So you will need a mobile strategy too.
Despite the web and mobile trend, the top retail brands are all physical locations. Top retail businesses like Walmart, Costco, and Home Depot still depend on their physical locations to subsidize their online stores. They are also acquiring online properties in order to supplement their brick & mortar business. What they focus on is understanding their customers and delivering an amazing experience. For physical retail businesses to survive, you need more than a big smile and a good-looking logo. Your business needs to solve a real problem or address a niche in the market. You need to connect with your customer where they already are and deliver happiness. Blockchain technology provides the flexibility necessary to deliver the experience that your customers want both in-store and online.
Building Loyalty Into Your Value System:
It is well known that your most loyal customers are your most profitable customers. Lowering costs and removing fraud are important ways to improve the bottom line of your retail business, but they do not impact loyalty. Loyalty is not a lower price or a good location. Loyalty is making sure that your business operations and values are in line with your target customers. Here are the brands with the most loyal customers. They also happen to be the most profitable brands.
These companies have created an experience that people love and a value system that is aligned with their customers. Most retailers confuse marketing programs like point programs with loyalty programs. Although short-term marketing initiatives with rewards can help draw customers in, if they do not align with the value that you are creating then they will not deliver long-term loyalty.
According to Harvard Business Review, acquiring a new customer can cost anywhere between 5 and 25 times more than retaining an existing one. Once someone has entered your store and made a purchase, it is more important than ever to make sure that they come back. One of the most underappreciated aspects of blockchain technology in the merchant payment process is the technology’s ability to provide customized options at and after the purchase.
Here are a few ways that blockchain payments can improve customer loyalty. First, and the most obvious, is the experience. As a customer, imagine never going to use a credit card that does not work because your information is compromised. Blockchain puts the purchase confirmation in the customer’s hand and does not present the same risks as credit card numbers. Second, once the blockchain is up and running, there are transactional savings. These savings can go towards investments in customer experience and loyalty. It has shown that consumers are more receptive to brands that align with their values. With blockchain, you can customize exactly where that investment goes for each individual customer, therefore, creating a customized rewards program that is in line with that individual’s values. Third, get more data about your customer needs. Small business can get the data that is traditionally fenced off by the large corporations, banks and credit card companies. Fourth, micropayments can be made using the blockchain. Traditional payment methods do not allow you to make small payments because the infrastructure does not allow it. With micropayments, you can contribute a fraction of the transaction to anything you like at checkout. Or create a program that makes multiple contributions to programs of the customer’s choice after purchase.
How would this look like in a real life loyalty program? Taking the cost savings from any transaction and automatically contributing a small percentage of that transaction in real time to the charity of the customer’s choosing. The concept of creating a mass customized rewards program for each individual customer is unheard of and would not be a reality if not for blockchain technology. Utilizing blockchain technology to implement a community focused value system can be the stickiness that you need to keep your best customers coming back.
The Power Of Community Values:
Studies by the University of Alabama show that investing in community can help local retailers thrive with a lower marketing spend. By participating or investing in the local community, retailers can build trust with customers and lessen the importance of the economic value proposition (Price). Some activities that can help retailers build their value-based brand within the local community include making donation, fundraising, encouraging employee volunteering, scholarship grants, sponsorship of events, and partnerships with other local businesses.
There is no right or wrong answer when it comes to community giving or participation. The first step is to know your community. Get to know the retailers around you to understand if and how you can work together. Keeping customers in your neighborhood will only benefit you by keeping your store top of mind even if the customers are not making daily purchases. Be transparent, stay aligned with what you truly believe and share that with your customers. Customers can see through short-term marketing schemes that are not aligned with your greater goals. Get out of your store and consider events that are already organized in your community or create education that benefits your community and can get more distribution. If possible, be the host and share your location with the local community.
Technology can play an important role in how you participate or contribute to your community. Blockchain-based payments can remove the need to build a network of charities and make contributions. Building your giving into each payment will enable your team to focus on delivering a great experience for customers. Investing in the right POS and marketing software can help you remember your customers and provide a unique experience for them. They will also help you communicate more effectively with a personalized message. The right website infrastructure can help you test your message and drive customers to your store. Having a web and mobile platform that enables you to easily build, test and adapt your message will help you communicate the right values to your customers before they ever enter your store.
How To Use Current Technology More Effectively:
- Website: Having a website with a content management system that is easy to use will enable you to keep your message fresh and adapt it to communicate your value proposition. It is very rare that the first website content that you create has the right message for your customers. It is an ongoing process of testing and improving. Many different website builders give you this type of flexibility including WordPress, SquareSpace, Wix, etc.
- Blog: Your blog should be easy to find, easy for Google to index and clearly connected to your website. WordPress has been proven to deliver the best search engine optimization with its easy-to-use indexing and many SEO add-ons. Other blogs like Medium or Tumblr have access to their own active communities that can provide increased distribution. Although each blogging platform attracts a different audience, there is no penalty for posting the same blog on multiple sites so why not get as much distribution as possible.
- Analytics: Google Analytics is the standard for evaluating customer behavior online. It can be overwhelming for inexperienced marketers. Other paid tools that can be more user-friendly for a fee include Kissmetrics or Moz.
- Optimizing: In order to create the most targeted message possible, you will need to constantly be evaluating your content and adapting the message to see how that impacts online customer behavior. Optimizely is a great tool for creating web page A/B Tests. You can duplicate a specific page on your site then drive a portion of your traffic to two or more sites. Google also has an optimizing tool in its Google web tools suite. Heat Mapping your webpage using Crazy Egg can give you an idea of what content, pictures and links on each page are getting attention and driving behavior.
- POS: Point of Sale systems range from the simple entry level solutions to the most comprehensive solutions with every add-on you can imagine. In-store POS technology is catching up to online technology for analytics and customer data. Some things to consider if you want the most advanced POS solution include more customer data, increased focus on in-store experience and more dependence on the cloud. All of these things will give you access to more targeted customer data for each returning customer, allowing you to improve their in-store experience.
- Payment: Online payments have seen some innovation with Stripe and PayPal. Unfortunately, in-store point of sale payments have stayed the same. Both Google Wallet and Apple Pay created a new payment interface, making your mobile phone an extension of your credit card. They did not improve on any of the payment infrastructure or improve loyalty for retailers. The blockchain will provide a new and improved infrastructure for in-store and online digital payment, enabling retailers to provide more targeted experiences and incentives for customers.
The current payment infrastructure and rewards focus are not improving retailers’ ability to attract and retain loyal customers. The visa infrastructure lends itself to high costs and increased fraud, especially for card-not-present transactions. Small retailers are not able to access the vast amounts of data that is aggregated by the card networks and they do not have the volume or resources to create significant populations of data like Walmart or Home Depot. The restrictions created by the current infrastructure impact the ability for small retailers to drive more in-store traffic and better understand their customer needs.
Although rewards programs can act as effective short-term marketing tools, loyalty is built with values. With the changing retail landscape to communicate with and serve customers both in person, on the web, and on mobile, retailers need to better leverage new and old technology solutions to communicate their shared value system. The blockchain will play an important part in this moving forward.
seedpay helps local communities thrive by delivering a more secure and effective payment infrastructure. Local businesses depend on legacy payment infrastructure to run their business which is not built around loyalty. By using blockchain technology seedpay is able to deliver payment solutions that meet statewide and local needs. Unlike other payment technology seedpay has built an entirely new infrastructure that lowers costs, increases loyalty and seamless gives back to local communities.