The loyalty business at Fiat Standard
I worked at Mastercard for the past ten years, in the San Francisco office, building card-linked offer solutions to drive merchant loyalty. It's a fascinating business, where cardholders receive offers from merchants through their bank, giving them a discount if they make a qualifying spend at participating merchants. Below is an example of these offers/deals from my personal Wells Fargo bank account.
Offers drive new customer acquisition, reactivate lapsed customers, and increase spending frequency and “basket size” for existing customers. Overall, the marketing solution is highly effective at driving incremental spending behavior, primarily through credit card (some debit card) payment channels.
Enter Bitcoin
Bitcoin as a medium of exchange doesn’t get a lot of attention since bitcoiners are supposed to hold their bitcoins in reserve and there’s understandable anxiety about incurring taxable events on spending, but putting these concerns aside for a minute, let’s examine the business opportunity of driving merchant loyalty on bitcoin lanes instead of fiat lanes. What changes? It’s no exaggeration to say that bitcoin completely transforms the value proposition to deliver outsized economic surplus never seen before, with efficiency and use cases that fiat will never be able to match.
Costs
Providing any fiat offer program for merchants is an expensive undertaking, requiring a significant and complex technology stack and team of people to: credit participating merchants, confirm the merchant contract, assign offers to cardholders according to anticipated marketing budgets, detect qualifying spend events, reward redeeming cardholders with statement credits, compile reports for merchants to demonstrate the program’s effectiveness, and reconcile billing. Most importantly, all consumer spending is done through the most expensive payment channel (for the merchant) – the credit card.
Bitcoin rails eliminate a significant number of steps in this process. Merchants could participate in a more Google Adwords-like model through a self-service portal that is credited by committing bitcoin to fund the marketing budget in real-time (which can also be rendered obsolete in real-time, which is never possible in fiat-dealing programs). The bank and card processor are no longer involved as gatekeepers in the end-to-end solution; they, and their associated costs/fees, are completely removed from the value chain. Most importantly, redemption transactions are now done on low-cost Lightning Network rails, eliminating not only the direct costs of credit card fees (typically 3% or more), but also the indirect costs of chargebacks and fraud.
New paradigms
Fiat rails mean that consumers who participate in their bank’s merchant deal program typically don’t receive any notification at the point of sale that they’ve earned their discount, and the discount itself doesn’t show up as a credit on the statement until days later. A bank can invest in a real-time notification deal redemption solution, but it’s prohibitively expensive and complex to do so, and must be done on a bank-by-bank basis; very few do, and there’s no universal protocol that can be leveraged.
Trade financing of fiduciary offerings must be done in advance through pre-funding of a committed budget, or payment is pursued with the typical “30-day” type credit agreement, backed by contractual obligations.
Bitcoin Rails completely revolutionizes these legacy frameworks. Consumers can not only receive notification in real time at the point of sale when they take advantage of a native Bitcoin offering, to get that visceral peace of mind, but receive the discount Also in real-time. Not only that, but “split payments” are supported by technologies like LN Bits and Bolt 12, where the Bitcoin-native offering provider/company can also receive payment in real-time at the same point-of-sale event. This essentially makes the fiat “invoicing” step obsolete. Merchants can also change offer values, minimum spend thresholds, and most importantly, the inventory of the remaining offers/discounts (the marketing budget) they want to commit to, in real time; such changes are impossible through fiat channels, which require a budget commitment weeks in advance. I’m only scratching the surface of the long list of unfair advantages Bitcoin offers in providing a merchant offer program, but I’ll leave it there, for now.
Warnings
Reach: A deal program is essentially a two-sided marketplace, and it's important to have as large an audience of consumers as possible to make it worthwhile for merchants to participate. The audience of Bitcoiners, and what I call the “Bitcoin-curious” audience, are relatively small segments, though they are growing.
Segmentation: Fiat merchant bidding programs have a silver bullet that is currently unavailable in Bitcoin, at least directly: consumer transaction history. This history allows the merchant to carefully spend their marketing budget on specific consumer segments, such as new, dormant, and loyal groups. This is an invaluable tool to ensure the highest return on ad spend (ROAS) and also allows for generating before-and-after versus control test “incrementality” reports, demonstrating an increase in marketing campaign spend that is highly compelling and useful for merchants who need to justify spending money on bidding campaigns.
That said, I would argue that these caveats are mitigated by the potential for merchants to appeal to the Bitcoin segment, even in a broad, untargeted way, as the segment is highly valuable, skewing from wealthy, influential, and maniacally loyal merchants to Bitcoin-friendly ones. There is a first-mover advantage for any merchant in their vertical/category to appeal to this invaluable segment first.
The above is an example of how Bitcoin removes costs from the traditional system like never before, unlocking much higher margins for merchants and providing a more immediate, visceral and satisfying consumer experience. This long list of unfair advantages offered by Bitcoin-native merchant offerings cannot be copied by any competitor operating in fiat currencies. This is based on my experience over the past ten years working on CLO merchant loyalty programs.
Michael Saylor says, “Buy Bitcoin and wait.” Many of us Bitcoiners have the opportunity to not just “wait,” but to proactively help drive hyperbitcoinization. I’m taking this step with merchant offerings, leveraging my experience and expertise to bring native Bitcoin offerings to life. I’m curious to see what dramatic cost savings and unique new use cases other Bitcoiners might discover by reflecting on their work experience and expertise in fiat mining, reimagining them through the Bitcoin lens.
This is a guest post by John McCabe. The views expressed are solely his own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.
