Blockchain and Brand Currency

Blockchain and Brand Currency

SecuX Author : David Hsu, CSO, SecuX Technology Inc. 安瀚科技股份有限公司

What is Brand Currency

In economics, currency is defined as a medium that can store and exchange value in an instant. As the name indicates, storage and exchange of brand currency value is confined to the boundaries of the brand itself, instead of a country. The concept of brand currency dates back to the early days, including long-used retail tools like coupons, reward points, and gift certificates. As old-fashioned as these may seem, they have proven to be effective and fit the definition of a brand currency. In marketing, they might not sound as fancy and sexy as terms like “Social Media Marketing” or “Search Engine Marketing,” but when these three “tools” work together, the impact they bring about and the scale of their reach is far greater than people imagine. In the US, the market that these three tools can reach is almost as big as the e-commerce market. Although there is no official statistics regarding this in Taiwan, the value of reward points and coupons processed and managed by a third-party companies amount to over a hundred billion NT dollars a year. If we factor in gift certificates and coupons issued by individual companies, a conservative estimation of the market size would still easily exceed a hundred billion NT dollars. Coupons, reward points, and gift certificates have one thing in common: They make customers cling onto a brand by increasing the number of exchangeable items or services within the sales channels of the brand. Simply put, they directly affect the purchasing power of customers, therefore have significant influence on consumers’ purchase decisions. In the early 2000s, academics have been using the term “Brand Currency” to refer to the currency issued by a retail brand.

The Drivers of Rapid Brand Currency Development

Retailers have long discovered two approaches to gaining and retaining customers: 1) To retain price discount from the first purchase and instead offering it as discount for the customers’ following purchase; 2) To give customers small benefits over different time periods, thereby encouraging them to make more purchases. These two approaches are implemented in the form of coupons and reward points. Moreover, if these benefit values lead to purchases by a regular customer, they can extend positive influence by transferring the value to their friends. This is how gift certificates first came into being. Documenting and accumulating these benefit values while protecting the rights of the companies and the customers, and at the same time, ensuring convenient usage and exchange, is by no means an easy feat. That is why such means were not widely adopted until 1990, despite the fact that retailers and service providers had a real motive to create their own brand currency. Before that, only major airlines, international chain-brand hotels, and large department stores and hypermarket chains were capable of adopting such a business model. Over the past twenty years, there have been three instances of information technology driving development that made issuance of brand currency easier, its circulation faster, its use more convenient, and its transaction safer; leading to a larger amount of brand currency issued and a broader application range.

Digitalization

The first revolutionary driving development for brand currency is digitalization. Whether it be e-commerce websites or smart cards, digitalization has helped prevent the need from tedious anti-counterfeiting measures and paper printing. Among all developments, the advancement of the Internet and e-commerce, in particular, makes it much easier to establish an online information system. In the past, only international airlines or multinational hotel groups were capable of adopting business models that issued and exchanged reward points, but nowadays, a reward point system has become an essential tool for brands and retailers to manage their client base.

Mobile Technology

The second revolutionary driving development for brand currency is the advancement of mobile technology. Since 2010, mature technology in the form of 3G internet, smart phones, and mobile apps have not only created an easy way for customers to use brand currency but also allowed businesses to combine digital marketing tools with brand currency. The advancement of mobile technology has started to blur the boundary between brand currency and traditional mobile payment methods.

Blockchain

That’s right! The two driving developments mentioned above are occuring right now, one might even go so far as to say that they are a thing of the past. However, starting from 2019, comes an even bigger revolutionary game changer — Blockchain technology. The following paragraphs will explain why blockchain technology will usher in an explosive brand currency era.

Impacts of Blockchain on Brand Currency

Compared with the companies that have not yet employed the blockchain into their reward point and e-gift certificate systems, those who have will be able to enjoy five advantages or changes as follows:

Owning the Points for Real

In the past, typical marketing lingo would tell consumers that they can “earn” points through various actions. However, do consumers really “own” these points? Technically, the reward point system in the past was nothing but a slot within a company’s information system. It was regarded as special promotion provided by a company and deemed as “contingent liabilities.” Reward points have never actually been regarded as assets owned by a customer. Therefore, companies could change their policy or change when the reward points expire at their own will. This was the main concern and downside to reward point systems of the past. Reward points should be like fiat money that citizens earn through work, something that not even the government is allowed to confiscate. Blockchain technology allows brand currency to be truly under the possession of consumers, with business brands having no power or ability to terminate their value or alter the remaining amount.

Better Security

In theory, the balance of reward points or gift certificates can be unable to stop altering by a hacker or insider with malicious intent. However, if a brand currency is kept on a public blockchain, then all relevant data from issuance, custody and transaction, to execution of contracts, clearance, and so on, cannot be forged or tampered. By implementing blockchain technology, the rights of sellers and buyers can be better protected. Since the data cannot be forged or deleted, it allows a regulatory mechanism with more flexibility, thereby encouraging the government and the general public to support brand currency application.

Versatile Uses and Cross-Business Participation

The traditional brand currency is confined to the exchange for products or services in the sales channels of the issuer or requires the management of a third-party organization due to information security concerns. After introducing blockchain technology, cross-business application of brand currency becomes easier to achieve. Thus, the issuer of brand currency is not limited to a single judicial person but a group of businesses, an organization consisting of multiple individuals, or even a community. For those in possession of brand currency, there are more usage opportunities and ways to cash in brand currency, reducing the risks of holding brand currency for extended periods of time.

Lower Issuance Costs

The traditional electronic bonuses, coupons, or gift certificates required a closed information back-end system which handles the issuance, management, and clearance. In addition, a front-end POS system is needed for verification. Therefore, the necessary requirements made it unideal for a small scale business brand. By adopting a shared cloud computing system as well as IOT end-devices in the issuance of brand currency on a public blockchain platform, initial investments and subsequent transaction costs can be significantly lowered.

A Healthier and Longer-lasting Brand Relationship

The aforementioned four changes will bolster higher confidence, allowing small brands to develop and encourage business innovation. In addition, when consumers possess higher balance across multiple brand currencies, they will start to manage the brand currencies they currently hold. The relationship between a consumer and a brand will then be similar to that between a consumer and a bank; a healthier, long-lasting relationship. The aforesaid advantages are the potential changes to brand currency that blockchain technology can deliver. They will provide brand currency with more momentum and opportunities for innovative application.

Key Challenges to Realizing Brand Currency with Blockchain Technology

Using blockchain technology to make the issuance of brand currency for corporations of all sizes a reality, requires a system which can process over a thousand transactions per second, complete each transaction within ten seconds, and cost less than 0.1% of the amount transacted. All the first-generation public blockchain platforms on the market to date are unable to fulfill all three requirements. Fortunately, a number of new public blockchain platforms based on the consensus mechanism of Delegated Proof-of-Stake (DPoS) have gradually come into operation. The new platforms can complete each transaction within five seconds and, as a result, process a total of more than two hundred million transactions a day with a remarkably low transaction cost. In addition to their speed and processing capacity, another key factor is whether the retailers have affordable IoT equipment which allow sellers to an easily confirm whether a transaction has been completed. In practice, both the buyer and the seller are required to use a smartphone to enable transactions of blockchain-based virtual currency. But based on previous experience in promoting mobile payment methods, if the store employees have to constantly use mobile devices to confirm transactions, it is not a very practical solution. Such IoT equipment even supports the ever-so-popular unmanned services, constituting the infrastructure for future smart retail operations. Imagine this flow: Consumers make payments with their brand currency wallets. Blockchain platforms notifies the IoT platform after completing the verification of the payment transaction. The IoT platform activates the retail service equipment through an encrypted communication channel. After the retail equipment offers the service, the system will add the purchase in the record of service on the blockchain platform through the IoT. As a result, non-repudiation transaction records will be present for both the buyers and sellers, making critical progress for future unmanned smart retail services.

Actual Scene of Brand Currency

With the aid of the blockchain, the brand of brand currency is not limited to a “retail brand” or “retail sales channel.” Universities, local commercial districts, private tourist spots, non-profit organizations like social groups or associations, and foundations can also be considered a brand. The value of the brand currency will not have to solely rely on purchases from consumers. Since transaction records are transparent, the sources of funding can be government subsidies, as well as individual or corporate donations. For example, donations from a public university alumni association or subsidies from the local government can all be converted into a brand currency and given to financially disadvantaged students or low-income residents, and the recipients of the brand currency can make purchases with the brand currency at stores which accept said brand currency. By doing so, the stores can maintain the competitiveness, the disadvantaged can receive subsidies, and the subsidies can be diverted back into the premium stores within the system, creating an economic cycle.

SecuX: Best Driving Force in Realizing Brand Currency

Established in 2018, SecuX is headquartered in Taiwan but has its eyes set on the global market. The SecuX team consists of professionals and experts in the blockchain technology, large-scale corporate software, and consumer electronics and provides comprehensive brand currency solutions based on blockchain technology. We currently have projects in Taiwan, Germany, North America, and Central & South America. SexuX is always looking forward to new opportunities and you are welcome to join us. If you like this article, or you have your own thoughts about the future of brand currency, please feel free to contact us.