Loyalty Points which don’t expire. Coming soon.

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A grassroots campaign led by Canadian MP Arthur Potts aims to push a bill through the Canadian Parliament which would prevent loyalty programs from expiring a member’s points.

If successful, the new legislation will send shock-waves through the industry, with one of the first major programs affected being Air Miles (According to industry insiders, Aimia saw this coming so in prior years, they removed all forms of points expiry inside Aeroplan and Nectar – they now expire accounts with lack of activity). It could also have much wider-reaching ramifications if adopted by other countries, with many airline programs potentially affected due to their global reach.

Generally loyalty points expire in two ways:

  • points expire a set period of time after being earned (e.g. two years from the date of earn)
  • all points in an account expire if there is no earn or burn activity on the account for a set period (e.g. no activity within 18 months)

With expiry rates ranging from 5-20% for major coalition programs, the approach provides a significant contribution towards the profitability of a program.

Of course there’s a clear justification for imposing expiry rules on loyalty points; the reward program is required to carry the liability for the points on their books, which they cannot reasonably do indefinitely. To illustrate, if a member earn $20 worth of points, the reward program must defer $20 of revenue into an account and hold it there until the member either redeems the points, or they expire. This is to ensure the program carries enough revenue to cover the cost of the reward. If the points don’t expire, the program would be required to carry the $20 indefinitely. While $20 doesn’t seem like a large amount, many large coalitions are carrying billions of dollars of deferred revenue, with some of the US Ailrine programs carrying tens of billions.

So what would a world look like where points don’t expire?

A program where points don’t expire would be almost unworkable. Programs would have no way to clear the points balance from their books if a member decided to no longer engage with the program.

The Canadian members’ bill does provide an out, however. Rewards points are allowed to expire when the consumer agreement is terminated, unless the agreement provides otherwise. This means the clearest option for programs to force an expiry for a disengaged member would be to terminate their account, as per the Aeroplan & Nectar models.

This in itself creates something of a conundrum. Most major collation programs don’t terminate accounts unless specifically directed to. This allows them to declare much larger member base numbers than reality. If playing fair, loyalty programs would promote the number of active members, being members who have transacted in the last 12 months, rather than the total member base. If this member bill passes, expect the member bases of many large programs to shrink considerably, some as much as 30%.

How far reaching will the impact of this member bill be?

If the member bill is passed, it will certainly impact loyalty programs in Canada, but it may not stop there. Imagine a situation where US Airlines operating in Canada are also forced to adopt the no-expiry rules if they wish to continue to operate their program in Canada. Suddenly a large number of worldwide programs would be directly affected.

We can be sure industry leaders are watching proceedings very closely.

Philip Shelper is a specialist loyalty consultant based in Sydney, Australia who obsesses about everything to do with loyalty and rewards. His company Loyalty & Reward Co are a leading loyalty management consulting firm.

Let’s connect! https://au.linkedin.com/in/philipshelper

 

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