Start-ups looking to put the loyalty cards into the mobile phone are sprouting out these days and many more are being inspired to look at creating one on their own. These new start-ups are putting new features to the digital loyalty card to differentiate themselves, but is there a really a business model for loyalty?

I am highlighting this issue, not because of the biasses of where I am working now, but rather from the experience of the first version that has taught us valuable lessons in the business of loyalty. The learnings from the experience may be wrong and I will welcome these start-ups to show me otherwise.

Every digital loyalty card startup will talk about the fat wallet syndrome and how consumer will appreciate the fact that the digital loyalty card will remove this. There is some truth in this as much some wallets and purses are filled with loyalty cards, or the overfill of loyalty cards that are left in the car or in the house, and a thinner wallet would be much appreciated.

Will consumers be willing to pay for a digital loyalty card ? Definitely not.

Will merchants pay for their customers for using a digital loyalty. Probably, but the amount will be small and the start up will have to hire many in the sales team to get more retailers on board. The means may not be justified by the end result.

In the absence of a digital loyalty card, both the merchants and consumers will just go back to status quo and make use of good old-fashion loyalty cards.

There is also another idea of having loyalty points that could be used at different merchants. The merchant will entice consumer with higher loyalty points to shop at their outlet. However, the consumer can use the loyalty points at the merchant or at any other shop, even at competitors.

Here's the problem, who is going to fund the points to buy the benefit? Why would, for example Starbucks, pay for the points when the consumer could use it at ,for example Coffee Bean?

While the digital loyalty card startup is looking at easy set up, the business model will be a hard sell.


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