Coupon Industry and DLT: E-Commerce Grows With World Cooped Up at Home

Coupons, typically thought of as pieces of paper used at grocery stores to redeem discounts, have gained traction throughout the years. It’s been noted that coupons were first used in the mid-1890s by Coca-Cola. Since then, the coupon industry has expanded into a multibillion-dollar enterprise.

Digital coupons in particular are driving traction for the coupon industry. Statistics show that 126.8 million adults in the United States used online coupons in 2016. That figure is expected to reach 145.3 million users by 2021.

As digital coupons continue to be leveraged, the Coupon Bureau — a nonprofit coupon data exchange platform that works with Target, General Mills and many of the largest manufacturers of consumer product goods, known as CPGs — announced on April 22 that it will use Hedera Hashgraph’s Hedera Consensus Service to provide an immutable log of coupon registration and redemption data. 

Opportunity in crisis

It’s important to point out that the coronavirus pandemic may further increase the use of digital coupons globally. For example, China is incentivizing people to spend money again at retailers by issuing digital coupons through third-party apps like Alipay and WeChat Pay. 

Brandi Johnson, the CEO of the Coupon Bureau, told Cointelegraph that overall coupon demand in the U.S. increased by 30% in the immediate weeks following the outbreak of COVID-19, adding: “We expect this trend to continue as the economic impact is felt throughout the country. This translates to digital as much as it does paper.”

Johnson further noted that certain coupon circulars have completely halted production, resulting in industry movement toward digital initiatives:

“One major retailer went from 5% to 30% of revenues generated via e-commerce. The same retailer is now scrambling to get digital manufacturer coupons into their loyalty app and e-commerce system. They expect to complete it by May, and other retailers will likely follow suit.”

Digital coupons have also come into play to combat fraud associated with paper coupons. According to Johnson, paper coupon fraud typically results in $600 million per year in losses for retailers. She said, “One national CPG we spoke with said they had over $30 million in coupon fraud last year alone.”

Distributed ledger technology may help

According to Johnson, the data recorded from the Coupon Bureau on the Hedera Consensus Service, otherwise known as HCS, will be instantly available to all network participants, including coupon providers, manufacturers, clearinghouses and retailers in a decentralized, trusted manner. She said:

“The Coupon Bureau is doing important work to provide the industry with connectivity to a shared database that will house all distributed, serialized coupons available for redemption. Our platform will enable real-time validated, retailer agnostic manufacturer coupons to support smarter and more strategic campaigns, mitigate fraud, and simplify the redemption and reconciliation processes.”

The Coupon Bureau’s platform is meant to support all stakeholders within the coupon ecosystem while allowing each organization to maintain its current business models. This is challenging, however, as coupon and associated promotional data is fragmented, nonstandardized and filled with fraud.

Johnson noted that “without the necessary controls, transparency or trust, the industry usage of this promotional vehicle will decrease over the years.” Hedera’s HCS uses distributed ledger technology to create verifiable timestamps and ordering of events for any application.

Mance Harmon, the CEO of Hedera Hashgraph, told Cointelegraph that much like in the public blockchain networks that take transactions, categorize them and run smart contracts to operate data, HCS acts as the first layer in this equation:

“HCS takes transaction information submitted by entities using point-of-sale systems, timestamps those transactions and puts them in consensus order. That information is then streamed out to network participants.”

In turn, the Coupon Bureau, which works with accelerators that provide access to point-of-sale systems at leading retailers that represent almost 70% of the U.S. retail market, is able to see data such as which coupons have already been used. The organization can then mark used coupons in its database to ensure that they are not applied again. Additionally, HCS helps the Coupon Bureau achieve instant settlement of coupons. 

Mary Oster, the co-chair of the Joint Industry Coupon Committee, told Cointelegraph that most retailers collect coupons throughout the course of a week. Those coupons are then sent to clearinghouses for settlement. A production facility, usually located in Mexico, will then scan each coupon’s barcode, which allows the clearing agent to know who needs to be billed for each coupon. She said:

“About 80% of the time an electronic file is shared with a manufacturer, but those physical coupons need to get mailed to a clearing agent. This process could take 7–14 days. The clearing house then needs to invoice all those coupons. Overall, it takes about 30–60 days for coupons to get invoiced and paid.”

Johnson noted that using HCS eliminates the four to six week lag of data that currently exists with processing paper coupons. She explained:

“HCS creates a secondary audit point for stakeholders (including clearinghouses) in a digital format, which in turn speeds up any audit requirements should there be perceived discrepancies between the Manufacture Agent (settlement representative for the manufacturer) and retailer clearinghouse. In this new ecosystem, the stakeholder can refer to the Hedera Consensus Service logs as that primary or secondary data set for audit.”

What about blockchain?

While the Coupon Bureau is leveraging Hedera’s distributed ledger technology, Mastercard was granted a patent in 2018 by the U.S. Patent and Trademark Office to use blockchain to eliminate coupon fraud. By using a blockchain-based system, Mastercard intends to assign individuals a blockchain address, while credentials will be stored in a credit card or digital wallet. 

When the user attempts to redeem a coupon, a point-of-sale device will interface with the private blockchain network to verify that a customer is indeed authorized to receive the discount. Upon completing a transaction using the coupon, the blockchain system will automatically transfer the coupon from the customer’s wallet and into the “burn address” associated with redeemed coupons, thus preventing users from applying coupons multiple times.

American Express is also applying blockchain in a similar way, but for customer loyalty points rather than coupons. Michael Concannon, American Express’s vice president of technology, told Cointelegraph in a previous article that blockchain allows retailers to use loyalty rewards in ways they see fit for their specific customers and reconcile settlements instantly. He further clarified his stance in a follow-up conversation:

"In the American Express Flexible Rewards program, the shared immutable ledger is a single source of truth reflecting all transactions in real time. That trusted network provides transparency for simple reconciliation and auditing for all loyalty points awarded."

Transparency is gained, but...

Whether it be DLT or blockchain, which is a specific form of DLT, companies leveraging these technologies are able to inject transparency into typically nontransparent systems. Ashton Addison, the CEO of EventChain, a platform that uses blockchain to combat counterfeit tickets, told Cointelegraph that various manufacturers are making improvements to provide transparency for digital vouchers such as tickets and coupons:

“With the help of blockchain and DLT, brands can now trace their coupons from start to finish, while ensuring each coupon is unique and cannot be double spent, savings millions.”

However, Oster of the Joint Industry Coupon Committee noted that the real challenge moving forward is getting retailers to join open DLT networks:

“Right now we are concentrating on getting this system up and running, but there will be more opportunities moving forward. I think the coupon industry is ready for DLT, but retailer adoption remains questionable. Yet it only takes one major retailer to get the ball rolling.”