Loyalty programs are an essential tool for all modern businesses to magnify customer engagement, improve retention and provide creative avenues for effective marketing campaigns.

However, rewards programs often do not realize their full potential. The business challenge for successful implementation can be significant. Potential pitfalls include: account inactivity, low redemption rates, time delays, high transaction costs, high system management costs and low numbers of new and retained clients.

From a customer perspective loyalty programs are ubiquitous. Multiple bonus cards for stores, cafes, hairdressers and airlines, as well as banks, pile up in consumer wallets, all completely unrelated to each other. It is confusing to remember which card is worth using in which shop to get what rewards.

Instead of creating and maintaining customer loyalty, such programs work in the opposite direction and customers do not even activate, let alone use them.

A potential solution would be to create a universal loyalty ecosystem that brings together synergized suppliers of goods and services to provide an effective and flexible tool for interacting with customers – a universal digital loyalty currency. Customers would have less to worry about and more to gain. Businesses would benefit from cross-marketing opportunities and simpler and cheaper implementation and running costs, and they would gain more loyal customers.

Fintechs would be an obvious conduit for such a system because loyalty programs and payments are interconnected. Loyalty points usually have monetary value and financial institutions can store and exchange different types of reward points in the same way they store and exchange different types of fiat currencies.

A fintech platform that accommodates a wide-ranging loyalty network would be able to work with multiple businesses and their various loyalty schemes to convert and exchange rewards. Such a network would have the advantage of being global and easily scalable.

The key elements of a universal loyalty ecosystem are the payments platform itself, a recognizable loyalty currency that serves as the basis for all types of interchangeable rewards, and a customer-facing mobile application where consumers can manage their finances and loyalty points at the same time.

The payments platform should allow for fast and secure creation, redemption and exchange of points across programs, companies and industries. It should connect participants by opening accounts and be easy to use with rewards that are logically consistent, with the balance shown in fiat and in the loyalty currency itself.

A good idea to spur engagement is to give the option for the loyalty currency to be earned in a multitude of ways. Such options include cashback for daily financial transactions, purchasing goods or services from partner companies or participating in marketing campaigns. To be truly universal, points could also be combined with activities and rewards that are earned as well as shared by family and friends.

There would be several distinct advantages for such a loyalty ecosystem, such as reduced costs and increased flexibility. There would also be no need to build a loyalty program from scratch as participating companies could easily integrate their rewards through an API.

Digitalization is a key strength because a mobile app is so convenient as the single point of entry into a customer’s money management tools and the loyalty network itself. Apps also make it easier to track points and execute rewards transactions for the consumer. Additionally, there is no need to fumble around in your wallet or purse to find the right physical card, as points would be earned automatically while making a payment through the fintech processor.

With digitalization a comprehensive record exists of all customer touch points which can be turned into actionable intelligence to offer something valuable to each consumer. In particular, digital banks know what their clients like, what they buy, how much they spend and even their geographical location. It is a matter of bringing this data together to use this knowledge to offer rewards that have the ability to surprise and delight.

Imagine you are traveling, your flight gets delayed and up pops a reward – a discount for a sandwich and badly-needed coffee at the coffee shop right in front of you. That’s something really personalized that the ecosystem can bring to the consumer.

Loyalty programs are proven to improve customer retention and engagement and are a great marketing tool if implemented correctly. But they face the same challenges as other marketing and customer retention initiatives – a huge amount of noise and the challenge to stay relevant in an industry that’s treated more as a utility rather than a trend accessory.

That’s why fintechs need to step up and create and participate in wider ecosystems with loyalty programs. Such ecosystems have the potential to become an essential lifestyle choice for consumers. Fintechs can use big data to engage customers on an emotional level and benefit surrounding businesses. In short - a personalized ecosystem is where a truly great loyalty program comes into its own.