Brand loyalty programs are marketing strategies designed to incentivize customers to repeatedly purchase products or services from a specific brand or company. These programs reward customers for their loyalty by offering a range of benefits, such as discounts, free products, exclusive offers, and other perks.
Benefits
Benefits for companies mostly focus on increased customer retention and recurrent revenue generated from these customers. A brand loyalty program encourages customers to keep coming back to the same company, boosting customer loyalty and reducing the likelihood of customers switching to a competitor. By offering rewards, companies can drive more frequent and higher-value purchases from customers.
Another benefit, often overlooked, is better customer insights and user behaviour analytics. By tracking customer behaviour through loyalty programs, companies can gain valuable insights into customer preferences and buying patterns, which can inform future marketing strategies and product development.
Lastly, a loyalty program can enhance a brand’s image and reputation, making it more attractive to potential customers and investors, while building a stronger relationship with existing ones.
Risks
Notwithstanding the benefits, there are substantial risks that companies must account for and must be careful to protect customer data and ensure that sensitive information is not compromised. This is particularly important when it comes to personally identifiable information (PII), such as names, addresses, and credit card numbers. Companies must be vigilant to ensure that this data is secure and not vulnerable to cyber-attacks.
Additionally, loyalty programs can be expensive to implement and maintain, and the cost of offering rewards can eat into a company’s profit margins.
Potential data breaches can lead to users’ PII and proprietary corporate data exposure to competitors, such as details of generated revenue, pricing strategy, and remaining inventory.
Issues with traditional loyalty programs
Some of the challenges and problems that existing loyalty programs face when it comes to scalability, transparency, and ownership of PII.
Scalability is a major challenge for loyalty programs, especially when the program grows to include a large number of members. As the number of members grows, it becomes increasingly difficult for companies to manage the program and ensure that members are receiving the rewards they are entitled to. This can lead to issues with customer satisfaction and retention.
Transparency is another challenge for loyalty programs. Many programs do not provide clear information on how customer data is collected, stored, and used. This lack of transparency can erode customer trust and increase the risk of data breaches or misuse of personal data.
Ownership of PII is also a problem with loyalty programs. When customers sign up for a loyalty program, they are often required to provide sensitive personal information, such as their name, address, and credit card number. While companies have a responsibility to protect this information, they may also be tempted to sell or share this data with third parties, such as ad exchanges, in order to generate additional revenue. An example of this scenario is a customer who signs up for a loyalty program with a retailer. In exchange for their personal information, the customer is promised exclusive discounts and rewards. However, after signing up, the customer’s personal information is sold or shared with a third-party ad exchange without their knowledge or consent. The ad exchange then uses this information to serve targeted ads to the customer across multiple websites and devices. This violates the customer’s privacy and puts their personal information at risk of being exposed in a data breach or misused for fraud.
Another potential problem can occur, without even knowledge of the loyalty program managers. One of the main challenges with third-party service providers is ensuring that they handle customer data in a way that is consistent with the expectations and requirements of the loyalty program. Retail or bank companies often have to share PII with third-party service providers for payment or delivery processing, and it can be challenging to maintain control over how that data is used and protected once it leaves the company’s internal systems. An example of this scenario is a customer who signs up for a loyalty program with a bank or retail company. Throughout the data life cycle, the customer’s data is shared with multiple third-party service providers, such as payment processors and delivery companies. The bank or retail company has not intended to monetize upon PII that users have provided, but the data is now being shared and possibly copied across multiple 3rd party vendors and service providers that the software systems use or are integrated with. In such a scenario, the bank or retail company can become liable for data leakage, even if the data breach originates from any of the involved software providers.
Zero Trust Solutions
The Zero Trust security model can help to address the challenges and problems that loyalty programs face in terms of data protection and privacy.
The Zero Trust model is a security framework that operates on the principle of assuming that all network traffic, both internal and external, is potentially malicious. The Zero Trust model focuses on continuously verifying the identity of users and devices and limiting access to only the resources that they need to perform their functions.
The Zero Trust model can help loyalty programs to protect customer data by providing a granular approach to access control. It can provide a fine-grained access control mechanism that enables loyalty program administrators to regulate who has access to customer data and how they access it. By continuously verifying the identity of users and devices, the Zero Trust model can help to prevent unauthorized access to customer data.
However, integrating and maintaining the Zero Trust model can be challenging, particularly when it comes to changes to existing infrastructure and hiring personnel with the required skill set. To implement the Zero Trust model, loyalty programs need to establish a new security architecture that involves a range of technologies and processes, including multi-factor authentication, identity and access management, network segmentation, and encryption. In addition, implementing the Zero Trust model requires organizations to have a thorough understanding of their infrastructure and the data they hold, which can be challenging in large organizations with complex IT environments. The Zero Trust model can be challenging to implement in organizations that have multiple legacy systems, applications, and infrastructure. The integration of these systems with the new security architecture can be complex and may require significant changes to the existing infrastructure. Organizations may need to invest in new tools and technologies to facilitate the integration of legacy systems into the new security architecture.
Lastly, maintaining the Zero Trust model requires a specialized set of skills in areas such as cryptography, security, and privacy. Organizations may need to invest in training their existing staff or hire new personnel with the required skill set.
Blockchain as transparent scalable secure data management layer
Blockchain technology has the potential to address the problems and challenges that loyalty programs face in terms of data protection and privacy, and it offers some advantages over the Zero Trust security model.
Blockchain technology offers a decentralized and distributed approach to data storage, which means that there is no central authority that controls the data. Instead, the data is stored across a network of nodes that validate and maintain the blockchain. This provides transparency with whom the data is stored and access management to the data by sharing expirable encryption keys, which addresses the challenge of ownership and transparency that loyalty programs face when working with third-party service providers.
Blockchain technology also provides a high level of security through the use of cryptographic algorithms and consensus mechanisms, which ensures that data on the blockchain is tamper-proof and immutable. This addresses the challenge of data security that loyalty programs face, as it ensures that customer data is protected from unauthorized access, tampering, or theft. Furthermore, the use of smart contracts on the blockchain can help to automate and streamline loyalty program processes, reducing the need for human intervention and eliminating the potential for human error. This can lead to cost savings for loyalty program providers.
Unlike the Zero Trust security model, blockchain technology does not require a complete infrastructure overhaul. Instead, loyalty program providers can build their blockchain-based systems on top of existing infrastructure, reducing the cost and complexity of implementation. However, the use of blockchain technology does come with its own set of challenges. For example, loyalty program providers need to ensure that the blockchain they use is secure and reliable. They need to choose a blockchain platform that has a strong consensus mechanism to ensure the integrity of the blockchain.
Architecture of blockchain-based Loyalty Program
L1 as storage
One possible architecture for a loyalty program solution based on blockchain for a retail company with the use case described above is as follows:
- User Purchase Recording: Whenever a user makes a purchase, the purchase information is recorded on a digital receipt. This receipt includes details such as the date and time of purchase, items purchased, and the total amount spent.
- NFT Token Generation: An NFT token is generated for each receipt and minted to the user’s digital wallet. This NFT token is unique and serves as proof of ownership for the user.
- Storage on Blockchain: The digital receipts are then stored on the blockchain network. L1 blockchain can be used as it provides an efficient and cost-effective solution for blockchain storage.
- Private Encryption: The digital receipts are encrypted using the user’s private key, ensuring that only the user can access their own receipts. This provides a higher level of security and privacy compared to traditional loyalty programs where data is controlled by the company.
- Permission Management: Since the users own their data, the user must approve any data processing requests. Permission management can be implemented using smart contracts on the blockchain network.
- Multi-Party Computation: In order to enable other parties to process the data on the receipts without compromising user privacy, a more complex cryptography scheme such as multi-party computation can be used. This allows multiple parties to jointly compute a function over the encrypted data without ever seeing the plaintext data. In an MPC-based recommendation system, each user’s preferences can be encrypted and shared with the other parties involved in the computation. The parties can then jointly compute the recommendations based on the encrypted data, without learning anything about each other’s private preferences. This can help ensure that users’ privacy is protected while still enabling personalized recommendations.
- Analytics and Rewards: The processed data can then be used to provide analytics and rewards to the users. For example, the data can be used to provide personalized recommendations, loyalty points, or discounts on future purchases.
Decentralized Storage Integration
Storing large amounts of data on-chain can become expensive due to the limited storage capacity and higher fees associated with using the blockchain. Using a decentralized storage solution such as BNB Greenfield can significantly reduce costs since the data is stored off-chain. This can help to reduce the overall expenses associated with the loyalty program solution.
Additionally, BNB Greenfield has native permission mechanisms that can be used to manage access to the data, which can enhance the security of the overall system. And since the receipt data needs to be private and encrypted, storing it on a decentralized storage solution like BNB Greenfield can provide additional security benefits.
Secure Key Leasing
Generally, any function can be computed using MPC, as long as it can be expressed as a mathematical formula. However, the performance and efficiency of MPC protocols can vary depending on the specific computation being performed. In terms of state-of-the-art technology, there are still some operations that are considered challenging for MPC. For example, computations involving deep learning models and large-scale neural networks are currently beyond the state of the art for MPC due to the high computational and communication overheads. Similarly, computations that require a large number of rounds or iterations, such as iterative numerical methods or some machine learning algorithms, can be challenging for MPC due to the high communication costs.
As such, for loyalty programs with millions of users or processing millions of products, the MPC technique can be challenging and costly. As an alternative, a secure key leasing technique can be used to allow more scalable use cases.
Secure Key Leasing can be used for securely generating and distributing cryptographic keys between parties in a distributed system. The basic idea behind secure key leasing is to generate and manage cryptographic keys dynamically, rather than relying on static, pre-shared keys.
In secure key leasing, the user will act as the key lease authority (KLA), generating and managing cryptographic keys on behalf of the parties in the system. Each party is assigned a unique identifier, and when a party needs a key for a particular purpose (such as encrypting or decrypting data), it sends a request to the KLA. The KLA then generates a new key and leases it to the requesting party for a limited period of time, after which it is automatically revoked.
This helps to ensure that the application retains access to the data only while being permitted by the user — both from the access management perspective as well as data privacy.
Secure key leasing can simplify key management by centralizing key generation and distribution to the owner of the data, whereas MPC requires each party to participate in the computation. In terms of scalability, secure key leasing can be more scalable than MPC for large-scale systems, as it can handle a large number of parties more easily. However, MPC can ensure that the private inputs of each party are kept confidential throughout the computation, whereas secure key leasing does not provide this level of privacy.
Conclusion
In summary, brand loyalty programs are a powerful tool for building long-term customer relationships and driving revenue. However, companies must carefully consider the costs and risks associated with these programs, particularly when it comes to data protection and cyber security. Users should also be aware of the risks and take steps to protect their personal data.
