"Redemption, customer engagement and customer value are highly correlated," says Bob Daly, senior vice president of U.S. Bank FlexPerks Rewards. "We absolutely believe if you enable easier redemption that will make its way into the equation of the value of a program."

Minneapolis-based U.S. Bank debuted its instant redemption in November 2015 and has since seen promising results by its users. To redeem points, the bank has its FlexPerks customers enroll in the program. Those users on average have increased their redemption of points by fourfold over the 12 months after joining, versus the same period prior. Attrition rates of enrollees dropped in half.

Early promise for instant loyalty

The early promise of U.S. Bank's program hints that instant redemption of rewards points at the point of sale (POS) might finally be poised to take off. Buoyed by the utility of mobile devices and the open architecture of e-commerce processing platforms, instant redemption of rewards points is no longer a stretch of the imagination.

Various solutions have already come to market. In February, Sionic Mobile debuted a mobile rewards marketplace that uses the cloud and mobile apps to allow consumers to ‘earn and burn' rewards at the POS at more than 100,000 retail and restaurant locations nationwide. Terminal maker Verifone has developed a points redemption app that processors and merchants can use. TSYS is also working with other issuers to introduce white-labeled instant redemption solutions to roll out this year.

Instant redemption of rewards points is no longer a stretch of the imagination.

"This strikes square at allowing consumers who want to engage at a more frequent level to use their currency in a real-time manner," says Rod Boyer, group executive and president of TSYS loyalty. "Over time it is going to be a major competitive advantage."

That's in part because the growth prospects for revolving credit — where issuers can make the most money — are not what they used to be, says David Robertson, editor of the Nilson Report, an industry newsletter. This means robust rewards programs can give issuers a retention edge.

"Loyalty is the game," Robertson says. "The opportunities for revolving credit growth are not great. So retaining existing customers who spend and pay their bill in full every month matters, and creating reasons for them to be loyal to you is critical."

Jumping the hurdle

Rewards programs in part have been stymied by a vast web of disparate processors, along with a layer of value-add resellers and independent software vendors in the middle. "It makes America a very complicated merchant ecosystem to introduce anything new," Robertson says. "EMV is the great recent example. With loyalty redemption, this is also true because they all have to talk to each other."

That technology hurdle is being dealt with in two ways. One is to use open software architecture made easily available to merchants, with a cloud-based platform used to keep track of rewards, separated out from the transaction itself.

In the old days, add-ons like this were too difficult with basic terminals because everything was integrated with the transaction. Changes to the software would require recertification for PCI compliance.

"The payment terminal used to be a slave device to the POS," says Daniel Poswolsky, vice president of value-added services for Verifone. "Now they are semi-integrated, with the payment app separated out."

The other approach is to use mobile devices to complete the redemption. With U.S. Bank's FlexPerks, users receive a text message from the bank within seconds to a few minutes after the transaction. The text shows the points balance and how many points it will cost to make the purchase. To pay with points, users then reply with the text 'redeem' and receive a statement credit in the dollar amount used to purchase the item or service.

Conducting the rewards component via mobile avoids any risk of slowing down the POS transaction, Boyer notes. Imagine a high-volume retailer having to deal with tremendous volumes of shoppers at the POS. Any delays would add up fast for retailers. "That is a protected area of their business," Boyer says. "They don't want to do anything that slows them down at all."

Keeping it simple

The key is making the transaction basic, Poswolsky notes. Verifone's solution only prompts the consumer if there are enough points in the account to make a purchase, with a question such as "Would you like to pay with 5,000 points?"

Imagine a high-volume retailer having to deal with tremendous volumes of shoppers at the POS. Any delays would add up fast for retailers.

This simplicity is critical, Poswolsky adds. "Any time you add more decisions at the point of sale, you have the risk of losing the conversion," he says. "Basically, you can overwhelm the customer, so they won't be able to make a decision and decide not to make a purchase."

It all comes down to meeting the needs of consumers, Boyer says. "In the age of engagement, we are going to where they are in their natural way of interacting and behaving in the market."

And that should bode well for redeeming points at the POS.