Has a U.K. company figured out how to fix the loyalty problem with its mobile banking app?

One of the longest-running retail problems involves loyalty points and gift cards and the fact that shoppers tend to either forget about them or find them too much of a hassle to redeem.

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One of the longest-running retail problems involves loyalty points and gift cards and the fact that shoppers tend to either forget about them or find them too much of a hassle to redeem. An unredeemed reward is one that offers no incentives and changes no behavior. Gift card exchange sites were an attempt to address the problem, but shoppers still find the effort too great.

A mobile program in the U.K. called Flux takes an interesting approach, one where shoppers are instantly (well, within a few seconds) given the cash value of a reward through a direct deposit to the shopper's bank account. Because the interaction is relatively effortless, shoppers receive all of the promised awards.

The way it works, according to Flux CEO Matthew Cusden-Ross, is that Flux is integrated into bank mobile apps. When shoppers sign up for their bank, they have the option to activate the free service. There are some requirements. Shoppers must use a payment card associated with the bank as well as select a bank account already associated with that card.

The next step is that a shopper must engage in the incentivized behavior, such as purchasing a specific product or making a grocery total purchase of a required size. By marrying data from the bank (authenticating the shopper) and from the merchant's POS (authenticating that a qualifying purchase has been made), Flux converts the incentive into cash (20% off a $10 item means $2 in a cash deposit) and makes the deposit.

There is, however, a psychological marketing problem. Let's say that the store promises 50% off a $25 item. The shopper then expects to pay $12.50. With Flux, though, shoppers are required to pay the full $25, with the promise that — within seconds after the transaction goes through — they'll see a $12.50 deposit. Is that a leap of faith that some shoppers won't want to do?

Cusden-Ross conceded that the sequence is less than ideal. "I would obviously want it discounted before" the transaction is completed, he said, adding that the low-dollar amount of the purchases in initial store partners will hopefully make it less of an issue. "Our focus is on coffee chains and fast food," he said. "It might be different when we're dealing with department stores."

But the CEO said that the speed of the payment deposit will help a lot. "By receiving the cash back immediately, it provides a lot more gratification to the customer," Cusden-Ross said, especially when compared to other loyalty programs that often pay "typically a week to 30 days later. We think that's an awfully long time."

Flux is vague about the specifics of authentication that the system uses, other than agreeing that tokenization plays a role. "We don’t use the full card number" and "we use a lot of data. Tokenization is part of what we do. Even Barclay's (one of the participating banks) does not know how we do this," Cusden-Ross said. "We don't sit in the payment processing rails; we sit parallel to that."

Methodology aside, the program would need some tweaks to work in the U.S., especially with credit cards that aren't tied to any one bank account. I personally encourage people to use shuttle accounts, which are used solely for a single program and maintain a zero balance. When a deposit is made, it's immediately transferred out to a different account. This way, if something goes wrong and the program tries to withdraw dollars, there are far fewer — and sometimes zero — dollars at risk.

That, however, is a small detail. Strategically, this kind of approach has an excellent chance of addressing a loyalty issue that has plagued retailers for decades. By making the reward effortless and almost instant, participation and differentiated behaviors are much more likely.

Copyright © 2018 IDG Communications, Inc.

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