Retail’s blocks used to be entirely brick and mortar. E-commerce then shifted some blocks online. Now, blockchain is building on the foundations of both by influencing everything from payments and loyalty programs to retail locations and supply chains.
Building payments with blockchain
The idea that a major retailer could provide its own stablecoin, or fiat-backed cryptocurrency, is tantalising. It comes with two big caveats. First, amassing sufficient financial reserves to maintain a stable value remains unfeasible for most retailers. Second, no regulation exists to support a retailer potentially gaining an outsized control of the financial system.
A more viable alternative is a retail version of a central bank digital currency (CBDC) as a digital replacement for cash to be stored in wallets directly guaranteed by central banks. Retail CBDCs on a blockchain offer benefits like stablecoins – traceable transactions, automatic clearing, and programmability around use – while also being backed by governments. Their future remains unclear as governments explore opportunities, but retailers able to accommodate omnichannel payments are in good stead.
Building loyalty with blockchain
Utility tokens on blockchains are often associated with raising startup capital and function as organisation-specific “currencies” by providing privileged access to products and services. Another use is in loyalty programs where they enhance the concept of pay with rewards – transactions can occur instantly without the need for later reconciliation, and retailers can more dynamically personalise rewards based on previous transactions.
A non-fungible token (NFT) is suited to loyalty programs when personalisation extends into exclusivity and calls for something more dynamic than a one-off perk. For example, by redeeming an NFT or a set of NFTs, loyal consumers could automatically unlock exclusive content. An element of gamification comes from how consumer participation in brand-related activities can turn NFTs into earnable assets that can also function as tradeable assets by interacting with fungible utility tokens.
Building locations with blockchain
You don’t need flashy graphics or expensive virtual reality headsets to enter the metaverse. What matters in retail is an appealing and functioning e-commerce environment. Still, the idea of interactive experiences beyond basic product lists comes from video games, where in-game purchases are now common. Retailers can create in-store currencies via utility tokens to create functioning economies in carefully curated e-commerce environments that combine sales with engagement.
A variation involves retail partners on the same blockchain creating an e-commerce marketplace straddling multiple brands. The idea is similar to how multiple brands and retailers host experiences in the same virtual gaming worlds. Some brands are even bridging online and offline environments by making NFT-linked virtual products redeemable for real-world counterparts.
Building supply chains with blockchain
An NFT representing a batch of products can rely on “oracles” to provide real-world data from internet-of-things (IoT) sensors along a supply chain. The metaphorical chains work together as the blockchain provides a transparent record of the supply chain. Automatic invoice calculation based on real-time shipping data can then allow automatic payments specified for amount and time.
Ideally, payments are included on the same blockchain as the supply chain for instant reconciliation. The trust associated with transparent transactions and automatic reconciliation also promotes affordability on blockchain-based supply chains by letting banks offer trade finance to retailers more often and more affordably.
A new set of building blocks
Whether in payments, loyalty, locations or supply chains, blockchain applications are poised to enhance retail. Still, new developments from a nascent technology will not pop up overnight – even when built on existing foundations.
What they need is careful investment, one block at a time.
Read the full report Blockchain in retail: A new set of building blocks, and learn how Mastercard supports retailers to discover new insights and opportunities.
About the authors: Tancho Fingarov is the global business development lead of digital assets at Mastercard; Andre Ng is business development lead of digital assets in Asia Pacific at Mastercard.
