Why headless loyalty is better for customer engagement

Headless loyalty systems are API-first loyalty platforms that enable any customer-facing platform to integrate loyalty marketing functionality into their Customer Experience (CX) via API. Building adaptive loyalty marketing functionality is increasingly complicated and necessary, as loyalty points become a new asset class, and loyalty commerce between complementary brands gains traction.

Most loyalty marketers aren’t thinking of headless loyalty platforms yet, but they should be, because headless loyalty and headless commerce are the future of technology for consumer brands.

‘Headless commerce’ is a rapidly accelerating topic of discussion for brands as they seek to upgrade their technology to meet the demands of modern business. Such technology must enhance your agility in creating new customer propositions, evolving existing ones, and forging new brand partnerships, in response to a fast-evolving business environment, driven by changing consumer needs and expectations.

The loyalty industry still operates mostly on tightly-integrated legacy technology platforms, in which changes are slow and expensive. When these platforms were first built, waiting 6-12 months for changes was normal; now, it’s too slow, because by then your competitor has already had your idea, and brought it to market.

Recently, microservice-alternatives to the five core loyalty modules have made brands’ loyalty platforms more agile and affordable to run. Even if you need to retain your investment in an aging loyalty system, putting cloud-based microservices technology in front of them, as a hybrid approach, opens new worlds of opportunity.

In a true, headless, loyalty platform, the backend functionality is purpose-built to be decoupled from the front-end customer touchpoints, connected via easy APIs. This allows any component of the architecture to be modified without affecting all other components.

In the next three years, what is described in this article about headless loyalty will be commonplace – because the benefits are so significant. The transformation has started, but will soon accelerate rapidly.

This article explains what loyalty marketers need to know about the emerging trend of headless loyalty, and sets out the changes you can start making today to put your brand on the right path.

What does ‘headless’ mean?

To understand headless loyalty, it helps to understand headless commerce (but if you already understand headless commerce, you can click here to go straight to the section on headless loyalty).

The first versions of ecommerce platforms emerged in the late 1990s. Until around 2010, they were fairly monolithic systems where the front-end website was tightly integrated into backend servers. Websites during this period either tended to be optimized for content or for commerce, and the technology constraints were such that it was extremely challenging to deliver what we would consider a good customer experience today. In that world, every change was expensive and slow, because of the effort on both the frontend and backend systems.

In the early 2010s, store-front commerce platforms evolved, which improved the shopping experience, but these systems still relied on a tight integration between the frontend and backend systems. This made it very challenging to present content and products at the same time, so a brand had to optimize for either content (experience) or sales (commerce).

During this period, there was considerable friction between the marketing team (focused on content) and the ecommerce team (focused on sales) because they had different priorities and different technology stacks. This competition, and the resulting compromises, led to friction with the IT department, that had to figure out how to deliver solutions that worked in the marketplace. In most cases, these compromises also led to frustration among customers and inefficiency in business operations.

After 2015, brands gained access to technologies that allowed them to become customer-centric, and to deliver a browsing/shopping experience that facilitates a more enjoyable customer journey. Most of this improvement was enabled by APIs from backend systems.

APIs are effectively software intermediaries that accept dataflows and format content, so the frontend platforms and the backend platforms can operate entirely independently. This confers a number of advantages:

brands can use common, enterprise-wide systems on the backend, and customize the customer experience on many different frontend platforms
the frontend (presentation layer) and its content management system (CMS) can work with multiple, specialized services at the same time. The most common of these services would be the CRM
the backend can serve nearly anything to nearly any type of frontend platform – allowing CX professionals to access and present nearly any content in any way, while enabling commerce along the customer journey
companies can swap out components on the frontend or backend without affecting any other components of the ecosystem.
APIs also enable frontend platforms to become progressive web apps (PWA) that can do dozens of things in parallel with excellent performance.

We now call these API-first, backend systems ‘headless’ because the customer-facing (head) component is no longer tightly integrated.

It’s a model which has really taken off in the past couple of years because it allows brands to enable, measure and monetize consistent customer experiences: whether that’s on social media, in a marketplace, on a direct-to-consumer channel, or elsewhere.

Why is this important? Because customers use multiple channels at the same time when interacting with a brand. Harvard Business Review stated in 2017 that 73% of customers are using multiple channels at the same time. That number is certainly higher today.

Simon Rowles, Managing Director of Beyonde, a CX technology consultancy, had this to say:

“Our clients are building their success on highly enjoyable, differentiated, digital customer experiences. Loyalty is embedded in those journeys in new and increasingly different ways. Loyalty doesn’t run outside in a coalition, or parallel as a points and prizes offering; it’s part of the integrated customer journey. That’s only achievable with headless loyalty platforms.”

Today, customers want speed, convenience and personalization – and their expectations are rising rapidly. They effectively expect the best experience received from any brand to be provided by every brand.

The decoupling of frontend and backend platforms delivers significant benefits to the company as well, including much faster releases of new features, better ability to apply multivariate testing, the ability to tailor the CX to each platform or market, and the ability to swap out components without affecting others. This means that companies can always rely on best-in-class solutions.

The customer experience trumps price and product nearly every time.

Headless loyalty systems

Headless loyalty platforms are backend (or server-side) platforms, designed to process any type of loyalty transaction in a manner that is decoupled from the frontend, customer-facing environment.

The ability to decouple all the customer-facing functionality in the frontend platform from the backend technology (that keeps track of loyalty points transaction, loyalty rules, customer profiles, and redemption options) gives exponentially more freedom to developers to build whatever customer experience they want on the frontend.

It also allows companies the agility to introduce loyalty marketing into every sales channel or customer touchpoint to drive meaningful engagement.

This freedom is important, because the customer experience ought to be optimized to the form-factor of each channel. Headless loyalty systems make this easy, while adapting monolithic systems requires heavy lifting. Imagine adapting a monolithic loyalty system to work with Instagram, WeChat, or Facebook.

Developers don’t build data centers, payment methods, word processors, or email systems anymore. They simply connect via API to best-in-class platforms that focus on the individual functions, or to the microservices necessary to deliver comprehensive, yet flexible functionality to users. Consider how many businesses use Stripe’s API to enable payment capability, instead of building a complex payment solution using different payment gateways.

Most loyalty solutions providers, during the past five years, have enabled their systems to operate on virtual servers and started calling themselves SaaS solutions. Then they introduce an API and called themselves ‘open loyalty platforms’. Buyer beware.

A loyalty system operating in the cloud, with APIs, may still be a monolithic stack of legacy software that is expensive to modify.

The five modules of a loyalty system are the…

Points Bank – where you keep track of all the loyalty transactions and customer’s points balance
Rules Engine – where you define the logic for how many points a customer should get for any type of action or purchase
CRM and Analytics – where you capture data about customers, build profiles and run predictive analytics
Campaign Management System – which manages all communications with customers across any communications channel and makes sure competing systems don’t overwhelm the customer with too many messages in a short span of time
Redemption Catalog – where you aggregate interesting rewards that customers are motivated to earn by engaging with the brand

…and in a monolithic loyalty platform, all these services would be tightly bundled together.

Worse, tightly bundled CRM and campaign management modules make it harder to get all the customer data in one enterprise-wide set of systems.

Only when these five modules are microservices, that support individual functions that work seamlessly with third-party applications, is the solution truly a SaaS-based, headless loyalty system that can adapt to any use-case.

A robust, open loyalty system will support any use-case for the accrual (earning) of points/miles, exchange of points/miles into any other asset class (points, money, rewards, etc.), or the redemption of points for any product or service from any supplier. Reaching this infinite degree of flexibility requires a great deal of investment, which 99.9% of companies would not want to undertake since it is not core to their business.

By accessing headless loyalty functionality, as API-driven microservices, software developers can stop building enclosed features. They can focus instead on designing scalable and responsive technical architectures that allow their business to respond to new market opportunities, customer expectations, devices, sales channels, and frontend development frameworks. Therefore, headless loyalty systems deliver the flexibility and rapid time-to-market that optimizes return on investment (ROI) from their digital transformation efforts.

A common example of where such changes might take place is in the loyalty rules engine. Loyalty marketers should be able to introduce new, or change existing loyalty rules on the backend – with a few clicks of the mouse. There should be no need to update software on the customer-facing platforms that require new releases, nor any hoping that customers will download and start using the new version of apps.

They will also often want to make such changes in the redemption catalog. These ecommerce platforms, that allow customers to redeem points for prizes, are often very inflexible and they require users to aggregate and post new content in a highly structured way. Modern API-based reward environments can add, replace, or change any redemption option from any supplier instantly, as changes in the market take place – with no programming required.

In fact, we now question the concept of a redemption ‘catalog’ because a catalog by definition is static by nature. Brands need to embrace ‘redemption ecosystems’ that deliver more customer choice at much lower operating cost. That is delivered via APIs.

As we enter the ‘Age of Headless Commerce’, aligning a headless loyalty solution with the many different commerce platforms will be of paramount importance.

The business case for headless loyalty platforms

In addition to enhanced agility, there are two other dimensions to the business case for headless loyalty: cost-reduction, and accessing commercial opportunities in wider marketplaces.

Historically, brands tasked with building loyalty mechanics into their applications would either procure a solution from a third-party vendor, or invest many months in building the functionality from scratch.

Building the functionality from scratch would take a minimum of three to four months, for a basic points bank and loyalty rules engine to support seven or eight functions. That by itself is not a huge investment, but the moment the company needs to support 10 or 50 additional use-cases, the backend system must expand exponentially – and this is where the real cost comes in. That extension of functionality will now start to cost person-years for development and full-time equivalent professionals for maintenance and quality assurance testing. All of a sudden, the company’s ability to respond to new opportunities comes to a halt because the IT department becomes a bottleneck.

Procuring systems from vendors might cost $25,000 to $5M – and would still involve considerable customization to adapt to a specific company’s business requirements.

The other problem with both of these historical solutions is that they include custom CRM and campaign management modules – both of which already exist in your martech stack.

When buying a loyalty system from a third-party, 70-75% of the license cost and recurring maintenance is related to the CRM and campaign management modules. Yet most companies already have defined their enterprise CRM and campaign management system. The last thing they need is redundant technology from a third-party that stores customer data in another silo.

Currency Alliance does not offer CRM or campaign management functionality, because we know our enterprise clients already have these systems. This allows us to focus on being best-in-class with just the points bank and rules engine. We then plug easily into existing enterprise CRM, campaign management and loyalty platforms to complete a coordinated martech ecosystem.

The way technical architectures will evolve over the next five years, is that the microservices-based points bank and loyalty rules engine will fit neatly into the technical architecture of any enterprise, to work in unison with enterprise-wide CRM and campaign management systems.

A truly microservices-based backend will allow each brand to pick and choose which components from possibly several suppliers to best meet their needs in engaging customers.

Headless loyalty solutions based on microservices are also important because companies are increasingly participating in many new sales channels – primarily marketplaces or super-apps. This implies they are selling on platforms not controlled by the brand, and must learn to adapt to the mechanics of a platform operated by someone else to remain visible and drive conversion.

Monolithic loyalty applications are expensive to adapt for new sales channels, and it is cost-prohibitive to adapt them to five or ten different marketplaces where customers are now spending their time. For this reason, API-first loyalty systems will grow rapidly in popularity because they can adapt quickly to any new sales channel.

As you participate in more marketplaces and super-apps, liquidity of loyalty currencies will also become a major advantage: specifically, the ability for customers to use their points more like money, by earning and spending their preferred currency with as much freedom as possible.

Currency Alliance makes it possible for brands to give customers this freedom. The platform can convert the value of any loyalty currency into any other loyalty currency or fiat currency, at the moment of redemption, and settle with the supplier any way they prefer. We effectively enable any form of loyalty commerce.

This means that anything can be in the redemption catalog, and it gives brands maximum freedom to drive customer engagement as they wish.

Why are Headless Loyalty Solutions Appealing to Technical Architects?

Headless loyalty solutions work with any frontend platform or frontend development framework – allowing complete control and flexibility over how the customer experience is delivered across many platforms. This enables speed-to-market and rapid adaptation to new business opportunities.

A true headless loyalty platform uses open APIs with specific endpoints that are optimized for each use-case. An ‘endpoint’ in an API is simply the end of a communications channel provided by the API, that allows a specific function to be completed. In most cases, endpoints are optimized for specific use-cases or objectives that the business or technology platform is trying to achieve.

In an optimized backend system, the API endpoints receive data or requests and pass that to the appropriate microservice to complete a specific task.

Decoupling the frontend from the backend, via an open API, greatly enhances extensibility to work with any other components in the technical architecture. Smaller data transmission payloads improve performance, and the ability to switch out any module without affecting other components of the technical architecture.

It might sound like adding an API layer between the frontend and backend systems adds complexity or latency, but in fact, the opposite is true. The packets of information shared via API tend to be quite small, so congestion in the network is minimized, while the decoupling introduces a great deal of flexibility to adapt to different requirements and technologies.

Scalability is greatly enhanced because the microservices on the backend are typically decoupled as well. This makes it easier to add more resources to any function, as the burden on that function increases over time – all without affecting the performance of other loyalty services, and often without requiring much IT effort.

Therefore, a streamlined architecture will be made up of multiple best-in-class SaaS components working together to meet business requirements. Then, the engineering team will be able to focus on designing an efficient architecture, rather than on building features.

Advantages in migrating from legacy systems

For companies trying to migrate off their monolithic legacy systems, working with a headless microservices platform enables the phasing of conversion from the old system to new systems – one step (or feature) at a time. This greatly reduces project risk and overall project cost.

One example of such a legacy system is the Siebel loyalty solution, now operated by Oracle. Of the companies which have not yet migrated off Siebel, most have converted their CRM and/or campaign management to Salesforce, Microsoft Dynamics, or other modern platforms, but they retain Siebel for the points bank and rules engine. This is tremendously expensive, but they know they will soon be able to rely on a headless points bank and rules engine. This will add agility and reduce operating cost by around 90%.

Companies can also keep the legacy system in place and put the headless loyalty functionality in front as a thin layer of low-cost, cloud-based technology to enable new use cases. The headless loyalty system can support new use-cases, as they pop up, and simply inject copies of transactions into the legacy system, so the loyalty team has the master view of everything taking place with all customers in one place.

Furthermore, when the company wants to integrate new customer touchpoints like social media platforms, online communities, or research platforms, these can be integrated easily into the headless loyalty system. If the company wants to introduce artificial intelligence for predictive analytics, or start recording transactions in a blockchain, they can configure this easily via an open loyalty platform. All data can be pulled out of the headless system via API directly into business intelligence (BI) tools, data staging environments, or any other system.

Microservices and API-driven loyalty systems are also much easier to manage from a security and data protection standpoint, as they can ensure data is stored only in the most secure place, and that data in transit is encrypted as it passes between firewall-protected systems. Legacy loyalty systems may have fewer access points (because they lack APIs), but they will have proprietary architectures that are divergent from modern standards being embraced by enterprises going through their digital transformations.

If you are evaluating different loyalty solutions, be sure to ask the clients of potential vendors how long it takes to introduce changes. If their response is 3-6 months, then the system is neither a true SaaS solution, nor based on microservices – even if the vendor claims it is.

There are about 300 companies in the world selling loyalty program management systems, but 270 of them have only built first-generation solutions – mostly applicable to single-store retailers. Of the 30 with advanced, enterprise-scale functionality, only two (beyond Currency Alliance) appear to not be tied to a legacy architecture and have embraced open APIs to allow their clients to build whatever CX they want on top of the headless loyalty system.

Anyone who wants to proceed in developing loyalty marketing functionality into their own customer-facing platforms should benchmark the endpoints from relevant suppliers. Currency Alliance respects the work done by a few competitors but is certain to have the best documentation, optimal endpoints for each possible use-case, and more track record with major brands that have been using the API for years.

APIs need to be designed to solve real business problems and their endpoints need to be optimized for specific use-cases. Many APIs we have seen are simply a list of functions that are necessary to be completed by a company, but not organized to support use-cases with a single call.

Align your business with the cutting edge in martech

Over the past 50 years, technology platforms have evolved:

from mainframe computers and dumb terminals
to networked personal computers with client-server architectures
to web-based applications and smartphone apps.

Headless, special-purpose SaaS platforms are the next wave. They will answer a need for greatly reduced development and maintenance cost, and greater flexibility to deliver consistently good customer experiences – across platforms operated by many different companies.

There are many precedents that help make it obvious that this evolution won’t cease. Just look at how team collaboration, HR, supply chain, marketing ops, security threat detection and payments have evolved in the past five years with point solutions from Slack, Salesforce, ServiceNow, Atlassian, Asana, CrowdStrike, HubSpot, Workday, DocuSign, Veeva Systems, Adyen, Stripe. These, and dozens of other unicorns, have progressively been solving business efficiency issues, by developing point solutions that co-exist easily in the modern technical architecture.

Headless loyalty systems will take their place among them. As the $500B worth of loyalty points in circulation worldwide become more liquid and useful for customers, the businesses behind these loyalty points/miles will enable greater degrees of loyalty commerce to deliver more freedom and choice to their customers, as a reward for remaining loyal.

Currency Alliance: “Next-gen” Headless loyalty system

Currency Alliance has been an API-first, headless loyalty platform operator since early 2016 – which probably makes Currency Alliance the company with the most experience in supporting loyalty use-cases via API.

At a conceptual level, building a headless, API-first loyalty platform sounds fairly simple, but Currency Alliance now has invested tens of thousands of hours in evolving our platform via research and development, as new requirements have emerged. Few companies can justify this level of investment, which is why most fall behind as customer expectations and business requirements evolve.

Of the hundreds of clients that have worked with the Currency Alliance API, most companies were able to complete the integration in two to three days, but it is so easy that some companies finished the integration in as little as three hours.

There is no CapEx or license fees to use the Currency Alliance platform, and no recurring monthly minimums or maintenance cost. Currency Alliance charges just 2% of the value of loyalty points transacted on the platform. Discounts apply to high volume accounts.

On top of the low cost and efficiency, Currency Alliance also offers:

A mature, yet intuitive management portal

This is where team members can manage their points/miles, loyalty rules, transactions, consistent reporting, and also benefit from automated reconciliation and settlement.

With one integration, the IT department is never again the bottleneck in changing or expanding loyalty commerce, since everything is controlled by businesspeople through the portal.

Access to a network of potential partners

Many loyalty programs are already collaborating with complementary brands using Currency Alliance. These are brands who may issue your loyalty currency (and pay you for the privilege), enable exchange between points/miles, or accept your loyalty currency for thousands of redemption options.

In short: a bigger, more rewarding loyalty proposition for your brand is just one easy API integration away.