Consumer brands are experiencing increased competition from Asian manufacturers and, at the same time, they are often suffering because of information asymmetry with ever-larger distribution and retail partners. Large organisations, like Amazon and, online German fashion retailer,  Zalando, collect and control the data regarding customer behaviour, pricing and product preferences.

The high street is also battling the online retailers, which often have an advantage in terms of operating costs, range of products and potentially most important of all - “data”. Meanwhile, online retailers are in a “race to the bottom”, with price comparison services making it difficult to price products above the lowest price, while service levels and reputation goes largely unnoticed by the consumers. Furthermore, online retailers are also struggling with distribution costs, especially due to the high rates of returns which, for fashion retailers, can be as high as 40%. Online business is growing fast and in the USA it now accounts for over 30% of sales for retailers like Nordstrom and Macy’s.

In response to these challenges, consumer brands are increasingly looking to expand their geographical market reach, to raise their brand’s profile and to collect more data from consumers directly.

Blockchain technology can help consumer brands to accomplish some of these goals. For instance, by incentivizing consumers to scan tags on products, consumer brands can accomplish several things at once:

• Provide more information about the product such as provenance data and exclusive content, with the intent to increase the brand value

• Collect data directly from the end user e.g. through surveys and quizzes

•  Reward brand loyalty e.g. through loyalty programs or cashback.

•  Incentivize consumers to refer the brand and products to their friends

• Create cross-selling opportunities e.g. selling insurance or service agreements

Blockchain technology can ensure that reliable data is provided, e.g. regarding provenance, and makes these reward-based marketing solutions cost-efficient, even when “rolling them out” on a global basis. No more need to deal with multiple local currencies and no need to run a complex system to manage the loyalty program balances and transactions. All data is securely stored on a Blockchain, and interoperability between the various systems is possible. For example, Loylogic, which was established in 2005, has a global network of more than 500 retailers and 2,000 online stores offering millions of products and services linked to various loyalty reward schemes.

Retailers can benefit from Blockchain technology in much the same way. They can use similar reward-based marketing techniques to improve customer engagement and data collection. High street retailers can incentivize consumers to visit their stores, not by giving discounts, but by providing more value in terms of rewards, more exclusive products and those controlling access to a more exclusive experience. 

For instance, a football shirt sold in a store using Near Field Communication (NFC) can offer exclusive video content from the player, or an exclusive item for an “Esports game”, whereas the same shirt bought online does not come with these value-added features. So, if you want to be Ronaldo in FIFA 20 on your PlayStation, then you have to go to the Juventus store, buy his football shirt there, scan the QR code and get a digital token which unlocks the feature in the game. Therefore, one can see that this will incentivize consumers to visit the Juventus store, as opposed to buying online!

Also, consumer brands can benefit from supporting high street initiatives, as consumers tend to spend more money than online shoppers, and an improved “high street experience” can help to increase brand value and brand loyalty. Blockchain technology provides the necessary glue between consumer brands and the high street to make such joint initiatives viable.

The “rewards, not discounts” philosophy can, therefore, help improve margins, while offering an enhanced customer experience and build loyalty, so encouraging repeat purchase. For instance, in Holland, retailers use dynamic pricing to lower the price of products that are nearing their expiration dates. While reducing waste is a lofty goal, the potential problem is that consumers often perceive lower-priced goods as having a lower quality. An alternative would be to maintain the normal price level while offering a higher reward in digital tokens - the closer the product is to the expiration date. This incentivises the consumer to help reduce waste, without them be aware, and without undermining the perceived product quality.

Importantly, retailers will be able to automatically collect data about waste reduction and also the number of participating consumers. By using a public Blockchain, this structured data can be used by others to verify claims made by the retailer, aggregating data to gain more insights. This kind of transparency regarding Corporate Social Responsibility programs can also improve the brand equity of the retailer. An example of this is the work being done by Volkswagen and Zalando who have been looking at how they can use Blockchain technology to make supply chains more transparent and sustainable.

Equally important is being able to demonstrate “green/environmental credentials”, as many pension funds are asking for such evidence before they invest in a company. 

Blockchain technology is increasingly being used by retailers and manufacturers to help drive consumers back to High Streets, build greater engagement and loyalty between shoppers, brands and retailers, and potentially reduce the environmental impact of the retail sector. 

FinBoot has been developing a Blockchain-powered platform to improve the efficiency of tracking the multitude of samples that energy companies need to continuously create. Repsol typically has over 60,000 samples it has to create, as refining and transporting petrochemicals requires products to be sampled and checked in order to meet Repsol’s clients’ requirements. “Currently, there is a lot of rework involved in these types of processes where we handle a large number of samples due to labelling errors, information losses, or incorrect connections between information” explains Tomas Malango, at Repsol, adding “it allows us to identify the samples correctly throughout their whole life cycle.” The existing system is largely manual and paper-based, and therefore subject to human error and mislabelling so is time-consuming, as paper records often go missing.

Repsol believes that it could save up to €400,000 p.a. using this new Blockchain platform and FinBoot is now looking at how similar technology could be used to help other industries, such as the fashion sector where it needs to trace the provenance of the materials used in making clothes.

Meanwhile, the co-founder of Apple, Jo Wozniak, has invested in a firm that uses Blockchain technology called ENFORCE project. Wozniak reportedly said “ENFORCE aims to bring money savings on energy, but it also helps the environment”, a factor he said was important to him. He further added, “Blockchain will bring improvements to energy use and reduce consumption without consumers needing to change their habits”.

Where Blockchain technology is being used in the energy sector.

Source: https://www.indigoadvisorygroup.com/blockchain

Indigo Advisory Group, in the chart above, keeps record of various ways globally that Blockchain technology is being used for different purposes, which is updated as it discovers new initiatives. 

Blockchain technology is increasingly been used in the energy sector as it potentially provides solutions across the energy trilemma: 1) it reduces costs by optimising energy processes, 2) it improves energy security in terms of cybersecurity, but also acts as a supporting technology that could improve security of supply, and 3) it promotes more renewable energy generation and low-carbon solutions.

In a survey of 140 Blockchain research projects, Science Direct has identified many ways that Blockchain technology could help the energy sector:

•  Billing: Blockchains, smart contracts and smart-metering can offer automated billing for consumers and generators. Utility companies could benefit from energy micro-payments, pay-as-you-go solutions or payment platforms for pre-paid meters.

• Sales and marketing: Sales practices could change according to consumers' energy profile, individual preferences and environmental concerns. Blockchains, in combination with artificial (AI) techniques, could identify consumer energy patterns and therefore enable tailored and value-added energy products provision.

• Trading and markets: Blockchain-enabled distributed trading platforms could disrupt market operations, such as wholesale market management, commodity trading transactions and risk management. Blockchain systems are currently being developed also for green certificates trading.

• Automation: Blockchains could improve control of decentralised energy systems and microgrids. Adoption of local energy marketplaces, enabled by localised P2P energy trading or distributed platforms, could significantly increase energy self-production and self-consumption, also known as behind the meter activities, which could potentially affect revenues and tariffs.

• Smart grid applications and data transfer: Blockchains could potentially be used for communication of smart devices, data transmission or storage. Intelligent devices in the smart grid could include smart meters, advanced sensors, network monitoring equipment, control and energy management systems. In addition to providing secure data transfer, smart grid applications could further benefit from data standardisation, enabled by Blockchain technology.

• Grid management: Blockchains could assist in network management of decentralised networks, flexibility services or asset management. Blockchain technology could achieve integrated trading platforms and optimise flexible resources, which might otherwise lead to expensive network upgrades. As a result, Blockchains could also affect revenues and tariffs for network use.

• Security and identity management: Protection of transactions and security could benefit from cryptographic techniques. Blockchain could safeguard privacy, data confidentiality and identity management.

• Sharing of resources: Blockchain technology could offer to charge solutions for sharing resources between multiple users, such as sharing electric vehicle charging infrastructure.

• Competition: Smart contracts could potentially simplify and speed up the switching of energy suppliers. Enhanced mobility in the market could increase competition and potentially reduce energy tariffs.

• Transparency: Immutable records and transparent processes could significantly improve auditing and regulatory compliance.

 Source: https://www.indigoadvisorygroup.com/blog/2019/7/15/blockchain-in-utilities-2019-electric-utility-insights-infographic

According to Indigo Advisory Group, the pros and cons of using Blockchain technology in the energy sector can be summarised and illustrated as above. Therefore, one can see how fundamental Blockchain technology could be in the energy sector.

This represents a growth of 24.73% per annum, as companies desperately seek to attract and retain customers’ attention and their repeat business. Increasing online sales and the impact of technology, as millennials use mobile devices to shop, is helping to stimulate more companies to put additional resources into loyalty programs. But why bother?

Source: Shopify

As the above chart illustrates, if you can retain customers it can lead to a significant increase in revenue. This explains why loyalty schemes are seen as being an important part of the marketing mix for many organizations.

The concept of loyalty programs is thought to go back to the 18th century, with “premium marketing” in America. This was when retailers gave their customers copper coins with their shopping, which could then be used at a later date to make further purchases. However, it was not until 1958, when Green Shield stamps first started to appear in the UK, when those modern loyalty schemes took hold. We have now seen an explosion in the number of loyalty schemes which, in turn, has led to customers being disillusioned and feeling “why bother?”, as it results in them being signed up to a “cornucopia of programs”. However, how often can their loyalty points be redeemed for anything meaningful?

Blockchain technology can help us instead of signing up to dozens of different schemes, a customer can join a network that offers reward points which aren’t just redeemable at one company but are with any business in the loyalty schemes network.

Blockchain technology makes this possible by keeping a record of all of the transactions that can be accessed by the whole network. Instead of having separate accounts for all your airline miles and a wallet overflowing with paper-based cards, which get stamped every time you buy a coffee, a Blockchain platform securely holds and enables the sharing of the data, without breaching data protection legislation. While providing greater security and transparency for customers, for retailers this type of loyalty schemes can also be less expensive to create and maintain. 

Purdue University has developed X-Blockchain, allowing customers to buy goods and services, and be rewarded within a loyalty scheme and receive points. The companies that are part of these loyalty schemes and who pay for the points have access to “shredded data”—meaning any personal or confidential information has been removed. 

Source: Perdue University

Mohammad Rahman, an associate professor at Purdue's Krannert School of Management, and who leads the research team said. "This technology enables two people to confidentially exchange rewards points from perhaps a coffee chain for airline rewards points at a rate that both find acceptable and this is not disclosed to any third party, including our platform." In effect, technology is used to “code data” by removing sensitive information and enables access to the non-private data which is still very valuable for marketers.

Using Blockchain technology in loyalty schemes to collect and store rewards enables customers to redeem their points more easily, and therefore make loyalty schemes more appealing. 

If we are to see Cryptocurrencies being given to users for their attention and patronage, as a way to entice them to spend more time on a website and/or make more repeat purchases, etc, then we will need to see more initiatives such as the one from Purdue University. Using Blockchain technology means that data can be held securely, and only the relevant data is shared with those who are entitled to have access to it. It also gives customers more flexibility and transparency, so leading to greater engagement with the brands and retailers who are sponsoring the loyalty scheme.

Facebook’s Libra Digital Currency would appear to have polarised those who are more receptive than others. In India and China, Libra has not had a positive reception, with both governments potentially banning Facebook’s Crypto from being used by their citizens.

There has been mixed news from the USA, with Trump tweeting “I am not a fan of Bitcoin and other Cryptocurrencies, which are not money, and whose value is highly volatile and based on thin air. Unregulated Crypto Assets can facilitate unlawful behaviour, including drug trade and other illegal activity....” Although also in the USA, the Federal Reserve Chairman, Jerome Powell, seemed to contradict Trump.  Powell likened Bitcoin to gold, as a speculative form of value. Powell did not say Bitcoin is like gold, but how some Bitcoin’s users currently treat Bitcoin as if it were! He was stating what his thoughts were. However, it does offer a degree of legitimacy to Bitcoin’s claim to be a digital replacement for gold!

However, in the USA, there is a draft bill to try and prevent large tech firms to launch their own Cryptocurrency. The situation in the US was aptly summarised in a recent article in The Cryptoeconomist: “The current exclusive administrators of monetary policy, whether direct or indirect, do not seem to tolerate competition very well, but their reaction so far still appears to be fragmented and disorganised. However, it cannot be excluded that at some point they will be able to organise themselves and develop effective reactionary measures”

The French are less positive on Libra, with French Finance Minister, Bruno Le Maire, saying during a radio interview that Facebook’s latest foray into Cryptocurrencies “must not happen.” However, the French have confirmed that they are looking to introduce legislation so that companies, which voluntarily abide by standards on capital requirements, consumer protection and pay tax in France, will then receive approval from the regulator. Authorities in France are encouraging the European Union to create European-wide standards for Cryptocurrencies. Indeed, the French are looking at unveiling their own regulations around custody and asset management of digital assets, digital exchanges and Cryptocurrencies. In Singapore, regulators have actively tried to engage and embrace Cryptocurrencies as its Payments Service Act specifically includes Cryptocurrencies and domestic as well as cross-border transfers. In the third-biggest economy in the world (Japan), the view of its regulator the Financial Services Agency (FSA), which oversees Crypto exchanges, is that under current regulations, stablecoins are not considered to be a Cryptocurrency. Indeed, we have already seen one of Japan’s biggest banks, Mizuho, earlier this year launch a stablecoin pegged to the Yen.

The UK seems to be taking a more accommodative approach, with the FCA having pioneered the highly successful “sandbox” which allows regulated companies to, in effect, experiment and trial products and services. The soon-to-be Ex-Chancellor of the Exchequer, Phillip Hammond, confirmed that in his opinion the British government would not stand in the way of Libra.

Turkey plans to be the First Country to Issue Central Bank Cryptocurrency, according to reports from Coinape. Currently, over 18% of people in Turkey own some form of Cryptocurrency, so there would seem to be reasonable interest already in this asset class.

Finally, it has been reported that “Samsung Coin” has been filed as a trademark, and while Samsung says it is not responsible, one cannot help wondering how long it will be before we see the likes of a Samsung issuing its own Cryptocurrency to pay staff, suppliers, and possibly even use it as part of a loyalty scheme for its customers?

FAC is using the open-source Blockchain platform, R3’s Corda, with which FAC would appear to have very close links. The new CEO of FAC, Brian McNulty, was a former managing director at R3. One of the advisors for FAC is the founder of R3, David Rutter, formerly CEO of the electronic broking division of ICAP- the world’s biggest inter-dealer broker. 

FAC, which will be based in London, claims the asset management industry is over $100 trillion. It is building a Blockchain-powered platform giving access to IFAs/distributors, transfer agents, custodians, and other intermediaries, who buy and sell units in a fund, to one common database which has military-grade security. FAC claims that for a fund manager who has £100 billion under management, its platform will save the fund manager over £30 million a year. The cost of registry, depositary, and transactions will be 0.5 basis points as opposed to the current standard 5 basis points, and FAC’s McNulty has confirmed that FAC is in discussion with 25 asset management firms ready to use its platform.

There are other companies also using Blockchain technology to reduce the costs for asset managers such as AMUN, Calstone, and Funds DLT. The potential savings of using Blockchain technology are massive, at $3.4 billion a year, according to Calstone which processes over $170 billion transactions a month.

FundsDLT was developed by Fundsquare, a subsidiary of the Luxembourg Stock Exchange, carried out its first test in 2017, and now boasts a number of fund managers using its platform including Credit Suisse, Banco Best, in Portugal, and AcomeA SGR, in Italy.

Lowering administration costs is very much a focus for fund managers as they continue to be pressurised by regulators to ensure that customers are “being treated fairly”, and because we are seeing new types of fund pricing being introduced:

zero-fee Exchange Traded Funds (ETF) 

low-cost funds with performance fees.

In 2019, in a report from Deloitte on the asset management sector, State Street Global Advisors’ and Investment Company Institute’s data estimated that, globally, ETFs could grow to $25 trillion by the end of 2025, up from $4.8 trillion in 2018! This growth is partly being driven by the advent of “zero-fee” ETFs, which means that asset managers have a massive incentive to crush costs as they are, in effect, subsidising some funds in order to attract additional assets under management. 

Deloitte, in its report, also highlighted Allianz Global Investors have been one of the early adopters of a performance-based fee model in the United Kingdom. Investors are charged a base fee of 20 basis points and an incentive fee of 20% of any performance over the fund’s stated benchmark.

Another way that Blockchain technology is being used in the asset management sector is the tokenisation of funds, which Deloitte summarised as: “Tokenisation allows the creation of a new financial system- one that is more democratic, more efficient and vaster than anything we have seen”

Tokenisation of an existing fund enables it to be more relevant and suitable for younger fund buyers i.e. generation X and millennials, who are increasingly looking to buy and sell funds digitally on mobile devices without the need for face-to-face financial advice. Tokenisation can create more transparency, and it is possible to build-in stronger compliance monitoring due to automation-increased efficiency and lower transactions costs. This makes tokenisation of a fund a powerful incentive for asset managers to adopt.

Potentially, the additional compliance controls - using Smart Contracts – which carry out pre-authorisation checks before a fund manager trades or before a client buys a fund, coupled with greater transparency and traceability to improve KYC and AML checks, make the use of Blockchain technology highly compelling. 

Ironically, it was concerns over the “dark web” and anonymity of Bitcoin - that uses Blockchain technology – that made regulators suspicious, and initially cautious, of this new Asset Class and the Blockchain technology. However, now we could well see Blockchain technology being actively encouraged to be implemented by these very same sceptics.