What If Retailers Had No Liability on Their Books for Redeeming Rewards?

Frequent flyer miles are proprietary currency where the issuer offers the promise of redemptions (although airlines at least have no obligation to honor that promise).

What if a retailer created their own currency but didn’t promise to accept it for redemptions? That seems to me like a bad idea, but there’s a company promoting just such a thing. Somehow other businesses would still accept the currency as payments for their merchandise.

RibbitRewards are tradeable, blockchain-based loyalty tokens…

[E]ven if regulators ignore “crypto-reward” tokens, accountants could have a hard time with them. That’s because, under one Ribbit.me model, founders Sean Dennis and Greg Simon claim to effectively make disappear the loyalty program liabilities that merchants have traditionally had to carry to recognize their future obligation to deliver goods and services against those points.

With a viewpoint that upends the centuries-old principles of double-entry bookkeeping, Messrs. Dennis and Simon argue that if reward points are generated by an algorithm and issued in the form of a digital token on the blockchain, it creates an asset for the individual holder but the countervailing liability resides with the entire blockchain itself.

That means “there’s no liability on merchants’ balance sheets anymore…and that’s what’s huge,” says Mr. Dennis. “We can take millions of dollars in liabilities off their balance sheets.”

As Mr. Simon concedes, this kind of thing could blow a bookkeeper’s mind. “We tell them the liability disappears, because the blockchain belongs to no one,” he says.

If I’m creating my own currency, but I’m not liable to redeem it, someone else has to be willing to take it. For that to happen the currency itself needs credibility. The analogue offered it to Bitcoin, but Bitcoin has credibility because it’s not being mined by a single retailer and it’s limited in quantity so can’t be inflated.

Traditionally, private currencies had to have some kind of backing (liability) in order to gain trust. They had to be exchangeable for something… if not goods and services (redemptions) then gold or US dollars (exchange).

My gut is that if you let someone print money without having any liability the currency won’t have credibility, it won’t be accepted as payment (even bitcoin itself has limited adoption, you can spend it at Overstock.com but how many other big retailers?).

So while I’m fairly bullish on cryptocurrencies, and alternate payment mechanisms generally, I’m a skeptic here.

(HT: God Save the Points)

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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  1. Removing the liability from the books works one of two ways:
    1. Basically FFP with no presumption of good faith, 100% deval anytime, PLUS ongoing redemption costs to merchant.
    2. Use trusted crypto-currency like Bitcoin in which case you need to mine or buy btc, which is totally pointless because cost of mining is close to its value (or just get into btc mining business and sell it) which just makes it another convertible currency and moves it from a future fractional liability that is booked according to past spoilage percentages to a full upfront cost.

    Craven attempt to harness buzz around cryptocurrencies.

    As a simple tech innovation to allow FFPs and other loyalty programs to be openly traded, it’s great, but will never be adopted by airlines, hotels. They already try very hard to lock down points in order to boost their bottom lines via breakage. Opening Pandora’s Box by letting their points be freely traded would break their business model.

  2. A ridiculous concept no doubt, but your statement that “historically, private currency need to be someone’s liability in order to have credibility,” is overlooking the most important private currency of all! Gold is no one’s liability, but has immense credibility due to its scarcity, difficult in counterfeiting, and the sheer length of its history as a means of trade.

  3. Hi Gary,

    This is Gregory Simon, one of the co-founders of Ribbit.me. Thank you for checking us out! I would love an opportunity to speak with you in-depth about our business model, rather than go too much into it here. I’ll send you an email separately.

    The short answer is there are two types of solutions we will offer. One, the coalition rewards program RibbitRewards. Participating merchants offering it to their customers incur no liability much in the same way as if they were offering Green Stamps. Green Stamps was the analog version of us! Think of it as Plenti, but with a number of new utilities for both the merchant and the consumer otherwise not possible. I am a CPA and 12 year veteran of international finance and have also confirmed the accounting of our platform with most of the big four accounting firms. I can assure you the accounting it is correct.

    What you may find more interesting is our White Label solution. White Labeling a stand-alone program on our platform gives the program operator the ability to do a lot of very cool things by tokenizing the liability as a cryptographically secure tradable asset.The blockchain is very simply put an extremely secure and efficient value storage and transfer protocol, like an internet for value. Would you like to instantly receive your air miles in your smartphone as soon as you deplane and then redeem them right away at your hotel that same day? Would you like to have the convenience of seeing all of your rewards program balances in one digital wallet and the freedom to aggregate the value of those balances into the programs you use the most, instantly and at no cost right in your one digital wallet? These are just two examples of almost countless new benefits and utilities made possible with our platform’s technology.

    I am looking forward to connecting offline and discussing it with you further!

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