Back in 2013, the Harvard Business Review predicted that branded currency would revolutionize the consumer experience. And they couldn’t have been more spot on. Breaking down the revolution into a series of three waves, HBR successfully predicted the first two and now seems poised for accuracy on the third.
What is branded currency?
Currency, as defined by economists, is a store of value and a medium of exchange for goods and services. Branded currency acts the same, giving consumers a medium (like gift cards, payments, or loyalty points) to exchange for goods and services with a brand.
What did it come from?
Branded currency owes its origins to the gift card. Invented by Neiman Marcus back in the mid-nineties (and later hyper-promoted by Blockbuster), the gift card began as a simple plastic card through which shoppers could redeem items of value from a retailer.
Today, branded currency has expanded to include any physical or digital form of payment from a brand, including coupons, loyalty points, and gift vouchers.
Together, these payments account for a cool $165 billion in retail purchasing power.
Popular Forms of Branded Currency
Gift cards provide shoppers with a way to redeem a set value from a specific brand. Big brands like Apple, Walmart, and Netflix offer branded currency in the form of gift cards to encourage shopper interactions.
Points are offered by brands to shoppers for their continued loyalty. They are redeemed by customers as a form of value for other purchases.
Starbucks is a great example of this. The brand incentivizes shoppers to buy more by offering them Rewards points on purchases through their reloadable mobile app.
Coupons give shoppers discounts on specific items—no longer limited to physical forms (such as store flyers), today, coupons are also offered digitally.
A great showcase for the continued popularity of coupons, the coupon marketplace Coupons.com offers product and service deals on everything from groceries to accounting.
Where Is It Going?
In 2013, HBR predicted that the branded currency revolution would unfold in three waves.
First wave: retailers will make it easier to use their coupons or points for payment.
During this first wave, smart technologies helped retailers personalize the online shopping experience based on a customer’s previous transactions. E-commerce retailers began attaching coupons and offers to their customer’s accounts which could then be conveniently applied during checkout. The rise of digital transactions also made it much easier for customers to earn and redeem points with their favorite brands.
Second wave: the mobile wallet will introduce even greater convenience—bringing coupons, gift cards, and other payments into one digital space, free of a physical wallet.
Starbucks is an exceptional example of this second wave. They have seen enormous success in making their points program a smooth part of the purchase process. They’ve seen so much success, in fact, that their future CEO Kevin Johnson calls the mobile app their "digital flywheel." And as the app is already powering over 13 million Star Rewards memberships and 7% of all transactions, it's not surprising that the company has begun experimenting with cash free stores.
In this wave, credit cards and gift cards also moved to the mobile wallet. Products like Gyft have allowed consumers to consolidate their gift cards into a single and convenient mobile app. And for credit cards, tap and pay with your phone has begun the transition from a cutting-edge gimmick to mainstream adoption.
Digital Wallet Usage
("Which digital wallets have you used in the past 90 days?" source: P2P and Beyond in Digital Transactions Volume 15 Number 1)
Physical coupons have also been replaced by digital—now barcodes can be quickly scanned directly from a customer’s mobile app. Or in the case of Starbucks, not scanned at all.
Third wave: convertibility—new opportunities will be presented to convert branded currencies into other currency forms.
Experiments in the cryptocurrency space also have begun to explore the idea of a more flexible and transferable branded currency. Though to date, many examples seem to rely more on the fad of Bitcoin and less on the advantages of the technology.
As the third wave builds, it will be important that the tools we use allow us to adapt and connect with other systems. Finding a common protocol for exchanging value is one of the things that makes cryptocurrency (and its blockchain infrastructure) so attractive in this space. Modern APIs, however, may make this desire for a common protocol moot.
As we move further into the third wave, we’re likely to see a continued diversification in the way consumers treat their money—with some hybrid of spending across traditional banking and branded currencies.
In response, brands will also increase—and become more innovative with—the types of exclusive payments they offer. The goal being, to make it easier for buyers to convert and keep their cash within the brand’s micro-economy.
“Soon consumers will be managing their Branded Currency the way they use Mint to manage their bank, credit, investment, and other financial accounts.” — Mark Boncheck and Gene Cornfield, Harvard Business Review 2013
Starbucks, as mentioned earlier, is a great example of a brand that continues to experiment and improve the space—their mobile app makes it possible for shoppers to buy without ever touching traditional cash.
Apple Wallet is another. Its innovative platform provides hyper convenience to shoppers (bringing coupons, points, cash and more under one umbrella). By doing so, Apple gives buyers a powerful reason to keep their cash within its ecosystem.
Whether or not your brand is ready (and able) to create a major disruption like Starbucks or Apple, there are undoubtedly opportunities for you to motivate customers and offer a branded currency of your own. Companies succeed when they start simple and experiment to expand.
As this conversation continues to build and evolve, the first conference all about branded currency was launched last year. Flourish brings together the brightest mind in retail to explore the exciting future of branded currency, and Lightrail is excited to attend and sponsor this year in Chicago.
We hope to see you there, and stay tuned to the blog as branded currency is a big part of what makes us excited about the future of loyalty infrastructure.