CEO of Mil.k Alliance, Jayden Cho.
What is a currency? It’s a physical or digital instrument that has financial worth. With tokenization, currency is acquiring an expansive definition, and is blurring the line between traditional cash and loyalty credits, frequent flyer miles, and rewards points.
Frequent flyer programs are satisfying to join: They compensate (or refund) travelers for touring and staying in far-away destinations. Examples are discounted airline tickets, and the ability to redeem mileage points for free hotel stays, car rentals, and merchandise.
In the case of Mil.k (an abbreviation for the Mileage token), its founders are literally creating a secondary market where loyalty points of various companies can be traded and monetized. The Korea-based blockchain startup is building a platform where the price of points are shown in real-time based on supply and demand.
“When mileage points are not spent and therefore expire, they lose value,” said Jayden Cho, CEO of Mil.k. “By putting them on a global platform, we can establish a marketplace for travelers, consumers, and traders to identify attractive rewards, access their utility, and profit from price movements. This is possible because of the emergence of token economies, blockchain technology, and frictionless transactions.”
Upgrade me, please
The points economy is bigger than you think.
In 2017, $300 billion in reward points were in circulation globally, a number that was expected to reach $400 billion last year. In 2016, 84% of U.S. businesses used non-cash incentive awards that amounted to $90 billion, according to a 2016 study by Incentive Federation.
That includes points incentives for airlines, hotels, merchandise, gift cards, and other loyalty programs. Think places like gas stations and groceries.
Cho of Mil.k Alliance thinks the 30-year industry is ripe for a secondary market that enables the exchange of non-cash value.
“Airlines, travel agencies, rental car companies, limo services, and other types of businesses in Korea are working with Mil.k,” said Cho. That includes Yanolja, Korea’s No.1 online travel agency, which participated in the Mil.k platform as an early stage partner. “Other companies showing interest are a movie theater franchise, credit cards, and online retailers. It shows there’s a real use-case in the marketplace. And why not? The global points economy is huge.”
Hustling for points
Because points have value, blockchain enthusiasts believe they can be monetized via tokenization and/or exchange. They’re especially huge in the travel industry where Millennials want more bang for the buck.
Last year, American Airlines generated $2.2 billion in revenue from the sale of miles. United Airlines got $1.18 billion. “The marketing component of the sale of miles to partners is a material source of revenue - capable of reaching billions of dollars annually - yet it reflects only a fraction of a loyalty program’s value,” wrote Len Llaguno in a Jan. 2019 blog for Kyros, a consulting firm that specializes in loyalty programs.
Moreover, rewards programs of global companies tend to be very popular.
In the airline industry, Emirates has 20 million members while Qantas has 12 million. According to Kyros’s data, Delta Airlines had 14.9 million award redemptions last year, which comprised 7.9% of total passenger miles. For American Airlines, they had 11 million award redemptions during the same period, which comprised 6.1% of total passenger miles.
“Customers benefit because they can combine, use, or cash previously-spread mileage points,” said Cho of Mil.k Alliance. “Our platform provides discounts when consumers buy points. And for companies, the Mil.k platform is a way to increase the value of their awards. Most importantly, companies won’t have to pay any expenses for participating.”
Mil.k Coin is the method for trading various mileage points on the Mil.k platform. Cho said that Mil.k Coin provides financial benefits to customers such as discount effects. The platform is based on Hyperledger Fabric, the reputable permissioned blockchain. It’s regarded for its high security and reliability because it requires an entity to get a permission to participate as a node.
“Mil.k will be a case of commercialized permissioned blockchain that, with its strong security features and decent performance, will operate stable along with our partners’ legacy systems,” said Cho.
Let’s make memories
Companies need to appeal to a younger demographic who, as they grow older, possesses more disposable income. Half of Millennials (55%) said they plan to travel more over the next 12 months, according to Travelport’s May 2018 survey. Millennials also redeem more travel rewards than any other generation, according to a 2018 survey by Discover.
This age group wants flexibility and transparency. They also prefer memorable experiences (like traveling abroad) versus buying physical goods.
With a secondary market, loyalty points can be used outside of a rewards program to obtain cheaper or free airline tickets, hotel stays, tour package, or car rental. The long-term cycle of earning and redeeming rewards can be shortened to just a few weeks or months if they’re tradeable.
Moreover, travelers don’t have to be pigeon-holed to a single frequent flyer program. And why waste billions of dollars of unused or expired points each year?
The average hotel guest is a member of 3.25 hotel programs, according to a 2017 J.D. Power survey. But belonging to plenty of loyalty programs increases the likelihood that hundreds or thousands of dollars worth of points won’t be redeemed and/or will simply expire.
“Many cryptocurrency projects have failed because of lack of practical real world use-cases,” Cho said. “Other than the possibility of a price increase, are there other reasons to buy a token? These are essential questions for the sustainability of a token economy.”
A journey of a thousand miles begins with a single … frequent flyer point.
