A New Scope of Loyalty and Rewards Program with Len Covello of Engage People | Soar Payments LLC

A New Scope of Loyalty and Rewards Program with Len Covello of Engage People

Loyalty and Rewards programs have a long history but they are constantly evolving. In this episode, Len Covello, CTO at Engage People Inc. educates us on loyalty and rewards programs, how they’re integrated into payments, and how AI plays a major role in personalizing each consumer’s experience.

Payments & Fintech Insights In This Episode

  • Loyalty Program in the payments world
  • The importance of integrating loyalty at the POS
  • What makes Engage People different from the market
  • Upcoming trends for the Loyalty industry

Featured on the Show

Episode Transcript

Len: So we’ve always seen points as a currency. Think of it as another fiat currency, just from a different region or country, if you will. So there’s an exchange value for that currency. But we always thought there should be a way for you to spend this anywhere you want. And that was the gap. So we offer loyalty solutions in the industry and redemption options. But really our focus is what we call the pay with point space. And what that’s saying is as a consumer, my points have a value and I want that value not necessarily to be redeemed against a traditional catalog or the travel trip. But I want to take my points from that single car rental and I want to walk out of the airport terminal where I got that car and use it for a coffee.

Jacob: Welcome to PayPod, the Payments Industry podcast. Each week, we’ll bring you in-depth conversations with leaders who are shaping the payments and fintech world from payment processing to risk management and from new technology to entirely new payment types. If you want to know what’s happening in the world of fintech and payments, you’re in the right place. Hello, everyone. Welcome to PayPod. I’m your host, Jacob Hollabaugh. And today on the show, we are diving into loyalty and rewards programs. And as someone who likely ranks, I don’t know, top 100, top 50, maybe top ten in the entire world in rewards points earned with a certain fast casual burrito chain. I can say with confidence that as a consumer, I love being rewarded for my loyalty and I’m very excited to talk about this topic through a payments lens. Joining me to explore the topic of loyalty programs is Len Covello, a member of Forbes Technology Council, as well as the chief technology officer at Engage People, a company whose mission it is to integrate loyalty into every transaction. Len, thanks for being here. Welcome to the show.

Len: Jacob a pleasure to be here and we appreciate your loyalty.

Jacob: I hope all of the brands and merchants and things out there that I am loyalty are appreciated as much as I’d like to think they do. I’d like to start here, which is what is it about creating loyalty between consumer and merchant that got you so hooked on loyalty programs in the first place? As a place to focus so much of your time and your career and your efforts?

Len: I think it’s a mix of the personal desire to be part of loyalty programs. No different than yourself. I’m an avid user of loyalty programs, specific types, and I think we’ll get into that. And then at heart, I’m a technologist. So early on in my career we were building different solutions, more of a professional services side of things, and when we got introduced to the loyalty space, it just hooked us in as an organization and before Engage became a loyalty focused, just seeing how programs were run, understanding where technology could take them. It was just something that kind of hooked us in as an organization. So seeing the benefit of what technology can bring to loyalty, how it makes things easier both for the consumer and for the program themselves, has hooked us in and hook, line and sinker. We’re all in on this.

Jacob: Awesome. What was Engage doing prior to that pivot into the loyalty space?

Len: So building just technology solutions in general. So really more as a professional services company, we’d worked with some companies in the loyalty space who had introduced us not just to loyalty, but employee recognition and incentive programs as well. And a common theme there. And we thought, you know, there’s a lot of our expertise we can bring in building cloud based SaaS solutions to this space. And then from there, then on, that became our focus and we dove right in.

Jacob: Awesome. That I’m guessing we’ve kind of heard a little you and the company’s origin story there. Could you give me if you know which I’m assuming you do, having pivoted into this space, kind of a brief history of loyalty programs as a concept and service within the payments world, and when did they first come about? How did they function in their early days versus what you’re looking at, how they can function typically across the spectrum today?

Len: So loyalty has been around, I’m going to say, forever. And I think if the loyalty is in two different things. One is the points and the rewards side, and that goes back to the grocery chains and the subway shops giving you that stamp when you came in. And, you know, you collect your eight stamps, get your ninth stub free. That’s the reward side of things and kind of the points world. But if you really think of loyalty and the buzzwords that have been around for the last few years around personalization, it’s been there since we’ve had smaller shops. So if you think about it, you went to the local grocer or you went to the local restaurant and they knew exactly what you wanted and they tailored that service to you and that was the data they could collect because they were a small chain. So your loyalty came back to that establishment, whether it was that restaurant or that grocery store, because they were able to give you something specific to your wants and needs. And that’s the personalization side of loyalty. So I’d argue that’s been there since the dawn of commerce. And then adding the stamp programs has been the reward side of things and moving on from stamps and your ability to game that system. Bringing technology on top of that has kind of just accelerated the advancements of this.

Jacob: Yeah, I can say as someone who is the some 32, I’m the perfect age to have kind of like grown up through the big technological boom. And I get nostalgic about certain things that usually people a decade or two older than me get nostalgic about. But I just caught it. I remember having the stack of stamp cards, like on the coffee table before you leave my house as a kid of like, Where are you going? Is there a card in there? You should be taken with you. And now, of course, all of that typically is just in my phone, so it makes it a little easier. But I kind of miss having that stack as I left the House of you got to take whichever card is needed for this trip. So I listened to a recent demo of your product that you did, and during that you said that over $200 billion of loyalty points are issued in North America every year, and that up to $100 billion of that. So half goes unused, which was a staggering number for me to hear. What are the main factors that lead to half of all loyalty points or rewards or anything of that nature going unredeemed?

Len: A number of things. There’s going to be a natural piece of that that is just people that aren’t truly engaged in the program. And if you think about it, maybe you go to a car rental place and you join their loyalty program, but you don’t really earn enough for it to be meaningful. So there’s a subset of that 100. And their choice is another big issue. So people are looking for different ways to redeem, and not all programs have great choice. So they’re sitting there. And the second piece of that is the collection of points. So it’s still an aspirational world when it comes to loyalty. There’s the proverbial points are free. So we’ve got a subset of users or members and programs that are saving up over time to book that trip. So you’ve got that rollover effect as well. So I think those three things are the main contributors to that half not being spent.

Jacob: Yeah. And I hadn’t thought of it seems kind of obvious now that you’ve said it. Of course there’d be some subset that’s never going to be removed. I sign up for rewards program every place I make a purchase. I’m not necessarily going to go back to every place I’ve ever made a purchase. Do you have any idea what percentage you would maybe put Peg that at? Like if you were looking long term at, Hey, we want to get this 50% number down to whatever we know. X percentage is never going to be capturable no matter what anyone within the payment chain is doing.

Len: So since it’s such a big number, any type of movement is really meaningful. So we don’t have a number on our boards here to say we’re going to get the 50 down to 75 utilization of points, but I think we can grow that. There’s always going to be a low double digit number that just simply doesn’t get redeemed. But some of these other buckets of points, we’ll call them, there’s ways to address that and create that loyalty back to that brand. Even that single car rental. You can do something with that.

Jacob: Yeah, of course. Presumably the unredeemed points benefit the issuer in a way by the fact that they are adding this as an incentive or a value add and then it’s not being brought back to them. So do you find that there might be some companies that would be conflicted about reducing the barriers to redeeming points or to enacting actual use of the programs that they’ve traditionally had?

Len: That’s really a misnomer that you see out there. So anyone looking at the loyalty space from the outside would assume that it’s points not being used, therefore not being burned. But loyalty is a very governed industry and those points themselves are liabilities on the books. So I’d argue there’s a CFO in every company that’s hoping those points get used. The magic you will in loyalty is the cost per point. So how do I give a really great perceived value to the customer with those points while lowering my expense against that? So really, most brands want you to use those points. That’s really what’s creating that revolving loyalty with the program. It’s how do they give you great value with those points at a lower cost themselves? So the reward side or the redemption side is where you can do a lot of things there. But again, a misnomer. They actually want those points to be redeemed. It’s showing that you’re engaged in the program.

Jacob: Yeah, absolutely. So take me through a couple of the different products or services Engage is offering to help try to reduce some of those barriers, try to increase that percentage, redeem, try to make this more of an active part of the payment space.

Len: So we’ve always seen points as a currency, we call it a loyalty currency, but it really is a currency. Think of it as another fiat currency just from a different region or country, if you will. So there’s an exchange value for that currency. But we always thought there should be a way for you to spend this anywhere you want, and that was the gap. So we offer loyalty solutions and industry and redemption options, but really our focus is what we call the pay with points space. And what that’s saying is as a consumer, my points have a value and I want that value not necessarily to be redeemed against a traditional catalog or the travel and trip. But I want to take my points from that single car rental and I want to walk out of the airport terminal where I got that car and use it for a coffee. I want to be able to use those points for micro transactions and I want to remove the barrier of that. The world used to be you could redeem out of a catalog and people got this printed catalog and then the internet came along and e-commerce and we offered choice as an industry, your televisions, your gift cards, that’s still this intermediary. If I’m earning those points, I have to have enough to redeem for that Starbucks gift card as an example. Wait for that to show up and then go to Starbucks and redeem it when the truth is I’ve got $5 worth of points. I want to be able to tap at the POS terminal and use those points.

Jacob: Speaking of the POS terminal, I’ve also saw it possibly was in that same demo, but I know I’ve seen in a couple of different blog posts you and your colleagues have written that speak about the importance of integrating that loyalty at the point of sale very specifically, that that’s the spot where it needs to be able to happen and with as little friction as possible. Why is it so crucial that it happens at that moment?

Len: Well, if you think of it as a currency like we mentioned, that’s.

Len: Where that that transaction would close. So any steps or any barriers we put in that transaction is really just a this intermediary for the consumer to feel that they’ve transacted with those points and they have real value. So whether it’s online through the merchant gateway, that’s the final step of the checkout process or it’s the POS terminal that’s that final step. That’s me saying that whether it’s on my phone, whether it’s a tap of a card, this has value and I don’t have to take points or take cash out of my pocket or go against my spend value on my credit card. I’m just going to use the. For the transaction. So we really think that’s the best customer experience. And ultimately, really everyone in loyalty is trying to create that ideal consumer experience.

Jacob: Yeah. And I could say just again from the very much the consumer perspective of thinking of places that where I’ve actually utilized points or rewards that are offered to me versus places I don’t. And the one that immediately comes to mind is the one place I use 100% of them is I have a cat. And so I’m at the pet store quite often, and the chain I go to is extremely good about the moment you walk up to the cash register, wherever you’re checking out, they tell you every single transaction you have this amount of points. Would you like to apply them right now? And they make sure that I apply them every single time. And so every single time I’m actually using those where there’s other similar types of merchants that I’m going to often that I’m not even recognizing if I have something available to me or thinking to use it. And so that definitely hits home that like that is the place to have it done. And the less friction, the easier you can make it on the consumer to just these are available to you, you deserve them. Here you go. That’s really great. I wonder what are the cash flow and kind of net received differences for a retail e-commerce store that chooses to accept your loyalty program points in lieu of credit card payments? Is there anything that changes dramatically on the financial side for those players?

Len: So depending on the redemption option or the merchant themselves, like you mentioned here, is we’ll see increased basket size overall and that can vary but definitely increase basket size return visits. So the number of visits a consumer would have at a specific retailer when they introduced the ability to accept points, we’ll see some up to 3 to 4 more transactions per month at the high level of a consumer. So so a really big lift there as well as offering the ability to redeem points. So you spoke of an ecosystem that exists specifically in that retailer. What Engage has built with Access Plus is a network. So now we’re actually bringing in new consumers into specific retailers where they may have not shopped. So it’s actually a huge acquisition play as well. So increased basket size increase our number of visits as well as adding new members into programs or just acquisition of customers are the four places that we see a lot of lift.

Jacob: Yeah, definitely adding a lot of value to them there. So we’re it’s only March, we’re still in Q1, but if I were to award a buzz word of the year already for 2023, which I think it’s already safe to give out the award it would go to AI everyone wants to talk about regardless of the industry you’re in, regardless of what you do, everyone’s talking about AI has AI begun to have an impact on the loyalty industry and if so, what would some of those be? I think I saw either a blog post or again another speaking. I heard you reference it and I was like, I think that this is one of those industries that’s not just a big buzzword like it is everywhere else. I think it is going to have an impact. So could you walk me through some of those?

Len: Sure. And I’d agree with you. So I think the folks at ChatGBT have reconditioned us to use that word again. It’s been around a little bit in this industry. So AI helps us in a couple spaces and probably not as exciting or as glamorous as you would think. But there’s two spots to loyalty that are really important and one is managing the consumers. The relationship with the consumers. No different than a call center or a chat bot. It’s the ability to use natural language processing. Understand what a consumer is asking, whether their sentiment in that and create responses back when we collect that data. And we can also do some pretty exciting things. Segmentation and personalization is a big thing in loyalty as well. So it’s using machine learning and AI in order to put Jacob specifically where he should be. Again, something that a human could do, but not at the size and scope of data that loyalty programs collect. So those are the big places. You’re seeing AI in the loyalty space and it’s being done today. So it’s not something that everyone’s moving towards. A lot of the good companies have that implemented today.

Jacob: Awesome. Are there any other trends outside of the AI one that kind of exist in the loyalty industry within this year, the next 2 or 3 years that you think stick out as going to have the greatest impact or the kind of waves you want to be on the forefront of.

Len: So Engage is definitely leading the way, working with other organizations with this pay with points. And I won’t even call it a trend. It’s really this movement of points being a ubiquitous form of currency. What that’s allowing companies to do is establish really strong partnerships across brands. Loyalty used to be very specific is each store had their own loyalty program, and there’s this notion of coalition that worked in Canada never really took off for a little bit. In the UK, they’ve moved away from this coalition world but have created strong partnerships. So you’ll see brand alignment between a grocery chain, a bank or financial institution, a gas station as well. So you’ll see that relationship not a true amalgamation of brands, but just a partnership between the three of them. And you’re going to see a lot more of that happening. So as a consumer, when I look at a typical day in my life, I’m going to touch a number of areas and there’s going to be a loyalty program at the base of all that has a connection.

Jacob: Who were some of the early adopters or early partners? As you were working with on this, of the different players within the payment space, who are the ones you’re engaging with the most? I’ve been trying all conversation not to use the word engage outside of the company name and I blew it. I couldn’t do it. But which players within the space are you interacting with the most? Are you implementing your services with? And who were some of the early adopters, either partners you’re working with or possible industries that were much more open to building this kind of bridge between each other? Who were some of those early adopters?

Len: So really difficult for us. We’re a white label.

Len: Solution provider, so we work with some of the biggest brands in the world and officially not really allowed to disclose that in a PR sense. Of course. Of course. But the largest networks of the world, we work with the majority of them on different solutions. So we support what they’re doing and sometimes they support what we’re doing. I’d say there’s a lot of small players in the fintech space that we were able to leverage their capabilities as they were evolving banking and payments to kind of this movement going. So there’s a great company out there called Marqeta, I can call them out, which we worked on very early on to convert the points into a currency that could be accepted at POS and that really helped kick start some of the relationships we have today because it was a proof of concept out there. So it’s those types of companies that spark the creativity and the what is possible with us. And Engage has a really great reputation in a mindset of working with those companies and then bringing those capabilities to larger global brands that maybe couldn’t do it in house as quickly as we could or were waiting for these concepts to come to fruition. So whether it be some of the largest e-commerce retailers in the world, some large airlines we’ve worked with as well, hotel chains, a strong presence in the financial institution space. So if you look at the top banks across North America, there’s a good chance engage is working with some of those organizations.

Jacob: Yeah, amazing. Final question here for you then. You mentioned a couple times the idea of thinking of the points as a currency. I wonder, do you ever get any pushback? That idea totally resonates with me and it makes total sense. I could see why it’s easy to just consider it another fiat currency. Do you ever get any pushback from more traditional players in the space that aren’t willing to because they haven’t traditionally been thought of as an actual kind of currency? That using that analogy or analogy might not even be the right word of just moving it over and redesignating it as a currency itself. Do you ever get any pushback on that from anyone?

Len: I would definitely say that the accountants and the lawyers have something to say about that. There’s there’s value in that math being fuzzy strictly around the IRS and what they think of points. So I have no position on that officially. But in all honesty, I’d say everyone’s on board with that. So you’re really seeing the loyalty division of an organization having a lot more autonomy, I think is the right word and the ability to really stretch what they do across an organization. A lot more value placed there. We can go back five plus years and loyalty was a division of marketing or a division of sales, and now loyalty has a really good seat at the table with these organizations. And that point being a currency I think resonates with everyone we were talking to today.

Jacob: Yeah, absolutely. Well, Len, this has been super fun. I’ve learned a lot, as I’m sure our listeners have as well. And I can’t thank you enough for your time and knowledge that you’ve shared. Final thing to ask before we sign off is if listeners want to follow you, learn more about yourself, engage all of the services the loyalty industry is as a whole. Where would they go to do so?

Len: So you can visit our website at EngagePeople.com that has links out to our social profiles. We do quite a bit of blog posts ourselves, as you mentioned early on, actually put content out as well, both through LinkedIn, through Twitter as well. So a lot of different avenues out there. But just find us on EngagePeople.com and it’ll show you the way.

Jacob: Love it. And as someone who. Yes, clearly deep dived a little bit of yours and the company’s content in the last few days preparing for this, it was all great. Really, really awesome. So we’ll add links to all of that in the notes for the episode. So folks listening, if you want to get right over to that and dive in and follow along, they can do so. This has been fantastic. Thanks so much for joining us on PayPod. Len hope to talk again soon.

Len: Appreciate Jacob. Thank you again for the time. This was a lot of fun.

Jacob: If you enjoyed this episode and want to hear more, head on over to soarpay.com/podcast to subscribe on your podcast listening platform of choice. That’s s o a r p a y.com/podcast.

Industry Spotlight

Engage People

Engage People is the only loyalty network that enables program members to pay with points directly at checkout. The global technology provider connects loyalty programs with global payment systems and online retailers and covers 100% of the top purchase categories in North America.