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Loyalty points as currency? How Mastercard sees the next decade of payment technology

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By Emily Bary

Consumers in the U.S. are becoming more accustomed to tapping their phones or cards to pay for a transit fare, and eventually that experience might get an upgrade.

In the not-too-distant future, consumers may be able to make a transit purchase without holding up any payment instrument at all—just by using a biometric identifier like a facial scan or fingerprint, according to Ken Moore, the chief innovation officer of Mastercard Inc. /zigman2/quotes/207581792/composite MA -2.26%

Within the next decade, there could be a world “where you can walk up to the turnstile and your face, voice, or fingerprint will serve as your form of identity,” he told MarketWatch, allowing consumers to “freely walk onto the metro with almost no friction whatsoever.”

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Of course, payments companies and transit agencies will have to get the security elements right in order for people to trust this sort of futuristic technology. Consumers generally have become comfortable using facial recognition or fingerprint scans to unlock their phones, but the idea of a subway turnstile being able to verify an identity adds a new dimension.

Moore, for his part, sees opportunities for companies to make these experiences work in a way that’s mindful of user privacy. “It’s not necessarily that your biometrics will be held centrally in an unsecured fashion,” he said. “There are safe and secure ways of actually storing biometric data,” and consumers won’t choose to adopt a new form of payment “if they’re in any way fearful of unnecessary risks.”

In thinking about the evolution of payments and commerce, Moore considers large themes that could dominate in the years to come. For one, “biometrics are going to increase,” he told MarketWatch.

But the commute of the future brings up other big ideas as well, in his view, including that payment technology could become more contextualized. Our phones could sense that we’re leaving for work in the morning and automatically let us know which method of transportation would be the quickest based on train arrival times and other factors. Then, they could allow for the easy booking of a bike.

Moore’s role allows him to envision new payment experiences as technologies like blockchain, artificial intelligence, and tokenization spur changing notions about the meaning of money. He thinks about “a broader reframing of what we can exchange as value,” which now can move beyond currency into things like photos, art, and data.

Moore is intrigued by the evolving nature of loyalty points. Right now, someone might amass Hilton Honors points that can be redeemed for future stays, but looking to the future, those points might become a more broadly accepted payment method. He envisions a situation when someone might be able to exchange hotel rewards points “in real time” to pay for a wireless subscription or to tip at a restaurant.

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The transformation of rewards is already starting to play out. Starbucks Corp. /zigman2/quotes/207508890/composite SBUX -0.31% , which operates arguably the gold standard of loyalty programs, expects to allow for the exchange of loyalty points with other brands starting next year, as Chief Executive Kevin Johnson expressed a desire “to be at the forefront of this disruptive innovation,” when speaking on the company’s latest earnings call.

“Through blockchain or other innovative technologies, we are exploring how to tokenize stars” and “create the ability for other merchants to connect their rewards program to Starbucks Rewards,” Johnson said on the call. “This will enable customers to exchange value across brands, engage in more personalized experiences, enhance digital services and exchange other loyalty points for stars at Starbucks.”

Money travels across what the payments industry refers to as “rails,” and traditionally, these rails were fairly siloed, with bank accounts sending money to other bank accounts, for example. More recently, though, there’s been a “broadening and converging of payments rails themselves,” Moore said, and someone can “move money from anywhere to anywhere.”

Add in technologies like blockchain and tokenization, and he sees ways to expand what can be considered an instrument of value. Beyond using loyalty points to pay, consumers could take the excess energy supply from their homes and trade that for access to 5G connectivity.

Accordingly, payments may become smarter and more automated, in order to prioritize soon-to-expire loyalty points or ones that unlock limited-time offers.

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Another theme that intrigues Moore is the potential for growth in micropayments, which could represent a further evolution of the subscription economy. Instead of having customers pay for a TV upfront, companies could shift toward a usage-based model. Some insurance companies are already experimenting with pricing based on how much and how quickly someone drives, rather than just tying payments to demographics and geographies.

“Everything that can be provided as a service will be provided as a service,” Moore said.

$ 371.39
-8.57 -2.26%
Volume: 3.71M
June 7, 2023 4:00p
P/E Ratio
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Market Cap
$359.89 billion
Rev. per Employee
US : U.S.: Nasdaq
$ 97.92
-0.30 -0.31%
Volume: 6.29M
June 7, 2023 4:00p
P/E Ratio
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Market Cap
$112.60 billion
Rev. per Employee

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