How blockchain can revolutionize customer engagement in travel

The travel industry has long relied on loyalty programs to build brand affinity and enhance customer engagement. A recent report from Wakefield Research found that 77% of Americans belong to a travel loyalty program.

However, data also suggests that these programs are failing to meet the expectations of today’s digitally savvy consumers. According to the Bond Brand Loyalty Report 2024, 50% of travelers are frustrated by the inflexibility of traditional loyalty programs, while almost a third have abandoned them altogether.

Traditional “closed-loop” systems that operate in siled ecosystems leave customers with little flexibility when it comes to redeeming their points. Often linked to a single company, the sentimental and practical value of these points diminishes. As customers move between different brands and experiences, they find themselves accumulating points that are difficult, if not impossible, to use in a way that actually benefits them. Lack of flexibility is the cause of churn rates.

Brands must be careful not to fall into stagnation in a world that increasingly facilitates digitized and more seamless travel experiences. Today’s travelers expect more than just airline miles or hotel discounts. They want flexibility, choice and control over how they interact and redeem their rewards. For the modern consumer, loyalty programs should function as a currency, not a one-way ticket to a reward tied exclusively to a single brand.

Fortunately, the constant evolution of innovative technologies offers the travel industry the opportunity to rethink its approach to customer loyalty. The rise of blockchain technology and tokenized assets presents a creative solution. If brands can begin to adopt and integrate new decentralized methods, loyalty programs could become more dynamic and customer-centric.

But is it really worth it?

We’ve recently seen projects like Winding Tree cease their efforts with token loyalty, citing “lack of preparedness” and the “need for more trust in blockchains in the travel industry.” There is still a lag in how blockchain is integrated into the travel supply chain, with outdated technology serving as a barrier to possible innovation.

However, if companies can adopt a collaborative attitude and a willingness to allow customers to “walk” between brands, then a way will be made for beneficial mechanisms to evolve. The long-term return on investment could be remarkable.

Tokenized loyalty: flexible, interoperable and autonomous

Tokenized loyalty systems, powered by blockchain technology, offer a radical departure from existing models. Converting travel “points” into digital assets on the blockchain creates intrinsic value, transforming how they are earned, exchanged and valued across different ecosystems. Rather than being confined to a single brand’s ecosystem, tokenized points can exist in an open, decentralized network that creates many more opportunities.

Customers would gain new levels of sovereignty over how they store, transfer and manage their rewards. For example, a traveler could earn tokens from an airline and exchange them for discounts at various locations such as a hotel, car rental service, or even local experiences with the earned tokens.

This approach will force businesses to operate more smoothly, working together to incentivize customers rather than against each other.

Real-time transactions and borderless engagement

A crucial advantage of tokenized loyalty programs is that they can facilitate cross-border transactions in real time. Traditional loyalty systems often suffer from delays in redeeming points, particularly in international settings, where currencies and payment gateways create complexity.

Blockchain-based payment gateways can eliminate these friction points, enabling instant, borderless transactions that improve customer satisfaction. Complicated conversions and geographic restrictions simply should not be a problem associated with the loyalty program. Tokenization can be more convenient for businesses and consumers.

On the one hand, companies are tapping into more of an international customer base, thus fostering a more inclusive ecosystem. On the other hand, consumers enjoy new freedom with their rewards, which can be used instantly with a much wider range of choices.

Win-win for brands

Knowing that the essential goal of loyalty programs is to build customer loyalty, it may seem counterintuitive to adopt a reward structure that encourages consumer activity with other brands. However, if viewed through the lens of delivering true lifetime value to consumers, decentralized loyalty is much less likely to produce churn. Deeper relationships can be built, where customers feel truly supported to create their own experiences.

With interoperable rewards, the tendency toward disillusionment around points accumulation will fade. The decentralized nature of blockchain will enable companies to future-proof their loyalty strategies, making them more adaptable to changing consumer trends and technological advancements.

Integration of new programs

Creating and implementing new decentralized programs will require extensive preparation on the part of travel companies, with many elements to consider. They would do well to first opt ​​for a permissioned blockchain, on which only authorized entities can validate transactions. This would provide them with a level of control over data and privacy, while providing customers with a new transparent and decentralized experience.

For cross-platform exchange, loyalty tokens should be designed to be interchangeable across the entire travel ecosystem. Standards could help facilitate this compatibility and simplify the process of transferring and spending points between different brands.

It is also important to deploy systems on a decentralized and secure ledger for data management purposes, as well as establish multi-stakeholder governance around token issuance, transfer agreements and redemption rates. By agreeing on redemption value and loyalty rules, brands can create a consistent customer experience among themselves.

Compliance with evolving regulations also presents its own challenge and will require due diligence to ensure systems are operating in accordance with local regulations and guidelines involving, but not limited to, anti-money laundering and knowing your customer.

Conclusion

Despite the initial complexity that might deter brands from getting involved, the bottom line is that traditional loyalty programs are no longer enough for the modern traveler. As customer expectations evolve, the way businesses interact with their audiences must evolve as well.

Decentralized and tokenized loyalty systems, powered by blockchain technology, offer a new approach that emphasizes flexibility, interoperability and customer empowerment. By adopting these new models, travel companies can reinvigorate their loyalty programs, increase customer satisfaction and ultimately drive growth in a rapidly evolving digital landscape. It’s time to move beyond the outdated, closed-loop systems of the past and embrace the future of loyalty.