The Loyalty Business on the Fiat Standard: A Bitcoin Revolution is Brewing
I spent the last decade at Mastercard in San Francisco, crafting card-linked offer solutions designed to drive merchant loyalty. It’s a complex and fascinating field, where cardholders receive merchant offers directly through their banks, offering discounts for qualifying purchases at participating merchants. Take a look at this example of a card-linked offer from my personal Wells Fargo bank account:
These offers drive numerous benefits, such as new customer acquisition, reactivating lapsed customers, and boosting both spend frequency and "basket size" from existing customers. This marketing solution is highly effective in driving incremental spending behavior, predominantly through credit card (and some debit card) payment channels.
Enter Bitcoin: A New Paradigm for Loyalty
While Bitcoin as a medium of exchange isn’t widely discussed, with the emphasis often placed on "Hodling," let’s set those concerns aside for a moment and explore the business opportunity for driving merchant loyalty on Bitcoin rails instead of fiat rails. The shift is transformative, with Bitcoin utterly revolutionizing the value proposition, delivering unprecedented economic surplus and unlocking efficiencies that fiat can only dream of.
Costs: Shedding the Fiat Burden
Traditional fiat-based merchant offer programs are inherently expensive, requiring a robust and complex tech stack, alongside a dedicated team of professionals. This team handles:
- Credentialing participating merchants
- Confirming merchant contracts
- Assigning offers to cardholders based on marketing budgets
- Detecting qualifying spend events
- Rewarding redeeming cardholders with statement credits
- Compiling reporting for merchants to assess program efficacy
- Reconciling billing
Most critically, all consumer spending is funneled through the most expensive payment channel: credit cards.
Bitcoin rails, however, streamline this process dramatically. Merchants can participate in a self-service model similar to Google AdWords, credentialing themselves via a real-time commitment of Bitcoin to fund their marketing budget. This budget can also be adjusted in real-time, a feature entirely absent in fiat programs. Banks and card processors are no longer necessary gatekeepers in this system, eliminating their associated costs and fees from the value chain. Moreover, redeeming transactions are driven on the low-cost Lightning Network rails, eliminating not only the direct credit card fees (typically 3% or higher) but also indirect costs associated with chargebacks and fraud.
New Paradigms: Real-Time Rewards and Flexibility
Fiat rails typically leave consumers in the dark about whether their discount was successfully applied at the point of sale, with the discount appearing as a statement credit only days later. While banks can invest in real-time offer redemption notification solutions, the cost and complexity are prohibitive, and require a bank-by-bank implementation. Very few banks implement this, and there’s no universal protocol to leverage.
Funding for fiat offers must happen upfront, either by pre-funding a committed budget or through typical "30-day" credit agreements backed by contractual obligations.
Bitcoin rails completely upend these legacy frameworks. Consumers not only receive real-time notification at the point of sale when they leverage a Bitcoin-native offer, ensuring instant peace-of-mind, they receive the discount in real time. Furthermore, technologies like LN Bits and Bolt 12 support "split payments," enabling the Bitcoin-native offer provider to be paid simultaneously at the point of sale. This effectively renders the fiat "billing" step obsolete. Merchants can also adjust offer values, minimum spend thresholds, and most importantly, the inventory of remaining offers/discounts (the marketing budget) in real-time; changes that are impossible with fiat channels, which require weeks of advanced commitment. This is just a glimpse into the long list of advantages Bitcoin provides in the realm of merchant offer programs.
Caveats: Reach and Targeting
Like any two-sided market, a successful offer program relies on a large consumer audience to incentivize merchant participation. The current bitcoiner audience, along with the "Bitcoin-curious" segment, are still relatively small, although growing.
Fiat merchant offer programs capitalize on a tool currently unavailable in Bitcoin: consumer transaction history. This history allows merchants to allocate their marketing budget strategically to specific consumer segments, such as new, lapsed, and loyal groups. This is crucial for maximizing return on advertising spend (ROAS) and enables insightful "before-vs-after" test-vs-control "incrementality" reporting, providing compelling evidence of marketing campaign spend lift that is highly valuable to merchants seeking to justify their marketing expenditures.
However, these caveats are mitigated by the potential for merchants to attract the bitcoiner segment, even broadly and untargeted, due to its high value. Bitcoiners are affluent, influential, and demonstrably loyal to Bitcoin-friendly merchants. This presents a significant first-mover advantage for any merchant in their vertical/category to capture this invaluable segment early.
The Bitcoin Advantage: Efficiency, Transparency, and Satisfaction
The examples above illustrate how Bitcoin effectively eliminates costs from legacy systems, unlocking significantly higher margins for merchants and delivering a more immediate, visceral, and satisfying consumer experience. These advantages, unique to Bitcoin-native merchant offers, are simply unattainable for competitors operating on fiat rails. My experience over the past decade in the CLO merchant loyalty program space underscores this reality.
Michael Saylor famously states "Buy Bitcoin, and wait." But for many of us Bitcoiners, we have an opportunity to not just "wait" but to proactively drive hyperbitcoinization. I’m embracing this opportunity with merchant offers, leveraging my expertise to bring Bitcoin-native offers to life. I’m eager to see what dramatic cost savings and novel use cases other Bitcoiners can uncover by reimagining their fiat expertise through the lens of Bitcoin.
This is a guest post by John McCabe. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.