Grow and Expand Loyalty Reward Programs With Amazon Managed Blockchain (Part One)
At this point it is safe to say that most of us are either familiar with or engaged in at least one loyalty program. Loyalty programs provide consumers with rewards for many of the products that they already purchase. These rewards take many forms, from product discounts to free trials and everything in between. What’s more, the number and diversity of loyalty programs has been trending upward recently as customers seek out instant rewards for purchases and the motivation to maximize the impact of their dollar.
A new trend is emerging in the world of loyalty programs for businesses around the globe. Partnership-based loyalty programs, in which participating companies agree to creating a currency that can be exchanged at any of the participating companies’ marketplaces, are growing in popularity. Customers encounter these programs regularly—for example, flight passengers might use their points to redeem hotel rooms, transportation, or amenities at a hotel included in a partnership program.
Current topics in partnership-based loyalty programs
Just as partnership-based loyalty programs are exploding in the marketplace, a number of key issues are coming to light. For businesses engaged in these programs, it’s all about achieving customer retention and providing customers with the easiest and most diverse ways of redeeming rewards. But questions arise when these companies must determine who retains control over the customer’s loyalty points, how they audit the programs to facilitate fairness, which partners should join the network, and how to prevent customer data sharing with other partners. The Harvard Business Review underscored many of these challenges when a recent study showed that customers put a high priority on being able to redeem rewards in multiple locations, businesses, and online channels, encouraging even more companies to join partnerships.
The blockchain is currently the leading technology that companies are using to join these partnership networks. Simply put, the blockchain helps us to create a secure, robust, private, yet transparent database where each partner settles customers’ transactions directly with each other. If you are not familiar with the concept of blockchain, here might be a good place to start. Before the blockchain, companies had little control over how their partnerships were molded because a third-party provider dictated the rules, penalties, and shared contracts. But the blockchain, which establishes an open distributed system for partner hotels, airlines, merchants, and more, provides a solution that outperforms legacy centralized systems and hands control back to companies and their internal processes. In this blog post, we’ll introduce blockchain technology and discuss a few reasons why it continues to support leading loyalty programs through Amazon Web Services (AWS).
What does blockchain bring to the table?
Amazon Managed Blockchain, a fully managed blockchain service that makes it easy for users to join public blockchain networks or create and manage scalable private networks, works under two popular frameworks: Hyperledger Fabric or Ethereum. We’ll focus on the Hyperledger Fabric framework in this blog, leaving the discussion of Ethereum for a later post.
The first benefit that a blockchain network unlocks for partners is that it facilitates partners’ co-ownership of the database, helping customers to perform auditable transactions on the ledger, all while keeping customer data confidential and private across the system. Amazon Managed Blockchain helps us to do that by creating a private blockchain network where each new partner joins the network through a direct invitation. Even though one initial company creates the network, neither the company who created it nor any other company on the network is the database owner. Instead, the network decisions are made through a well-defined consensus mechanism. These settings are configured by a voting policy that determines the basic rules for all proposal voting on the network.
Here’s an overview of the distributed architecture laid out by the Amazon Managed Blockchain solution:
As you can see, each participant holds its own AWS account. While this decentralized approach poses some restrictions, it also means that each loyalty partner has the freedom to architect its application to suit its needs. For example, participant 1 can integrate a customer relationship management (CRM) system with the blockchain network to get insights on which of its partners are interacting with its customers the most while participant 2 can simultaneously use application logs to collect information on which products its customers are purchasing and produce custom recommendations using services like Amazon Personalize, which helps developers to build applications with the same machine learning (ML) technology used by Amazon.com for near-real-time personalized recommendations.
Introducing private channels and chaincode
Beyond customization, Amazon Managed Blockchain helps us to create well-defined private channels that segregate transactions between two or more partners. In other words, every private channel you create will have its own private ledger under the blockchain framework inheriting its properties. In the HyperLedger Fabric framework, the private ledgers and networks are permissioned, meaning that all participants are authenticated. Members can join only through a direct invitation and transact according to mutual agreements.
These private channels are configured by smart contracts, also known as chaincode. The chaincode is a set of definitions where common agreements, responsibilities, permissions, rules, and processes are set between organizations inside an enforced code. Members are only able to store, retrieve, and update the status of the transactions inside the blockchain channel when invoking the chaincode and complying with its definitions.
The chaincode opens up other opportunities for improved data security and privacy as well. For one, it helps customers and network participants to isolate, define, and automate mutual agreements because every transaction invoked on the channel’s smart contract is validated by a Fabric Certificate Authority Server. These servers issue identities to the network participants by generating a public and private key, which forms a key-pair that can be used to prove identity when invoking the chaincode inside a channel. The diagram below outlines the multiple-communication architecture inside Amazon Managed Blockchain:
Private channels in HyperLedger Fabric facilitate members flexibly interacting with partners in novel ways. For example, above, participant 2, participant 3, and the organizer can all have separate smart contract agreements and operate in their private channels. This can also be done without the organizer. We see participant 1 and participant 5 building a private channel between parties and defining their own rules while they also contribute to the system with new agreements.
Lastly, Amazon Managed Blockchain customers get access to multiple smart contracts, or chaincode, inside the same channel. These capabilities enhance our ability to innovate and structure our businesses. For instance, there are a wide variety of reward currencies used inside the reward program partnership solution from which partners can define exchange rates and conditions to settle. Users can define a new exchange token for every partner and consolidate transactions into a single asset similar to a cryptocurrency. From there, the number of opportunities that partners can share or isolate only grows.
We hope that you are now more familiar with a few of the concepts in the Amazon Managed Blockchain and how they can be applied to partnership-based loyalty programs. To learn more about how to spin up a cluster and start testing, visit this page: Get Started Creating a Hyperledger Fabric Blockchain Network Using Amazon Managed Blockchain. Look out for upcoming blog posts as well, where we will dive deep on this use case and explore how to configure smart contracts, channels, and much more!
If you’re ready to level up your own loyalty program, contact your AWS account team today to get started.