With Apple Pay launching soon I thought I'd take a look at what impact the smartphone may have on loyalty schemes in the future. Nectar is a coalition loyalty scheme which means that it has various members, unfortunately that approach means lots of compromises need to be made meaning the rewards are not great for anyone. 

One of the things that was supposed to make Nectar more attractive is that they were meant to limit the number of cards in your wallet as one card would cover a number of retailers. Many businesses both large and small decided to continue with their own loyalty schemes, some places using stamp cards (for example, get a stamp every time you buy a coffee and when you have 6 stamps get one free) or plastic loyalty cards, some have already embraced the smartphone and will offer a QR code on the phone which can be scanned.

I'm personally a fan of carrying only the essentials and thanks to Transport for London accepting contactless credit cards on their services it has meant I can spend most of my time in London with just a single card in my wallet. I don't want to fill my wallet with loyalty cards from various schemes but I am happy to carry a virtual loyalty card on my phone.

What has Apple Pay got to do with any of this? Well Apple announced earlier this year that loyalty card support would be coming to Apple Pay later this year (iOS 9), if this is implemented well and in a way that other phone manufacturers can also implement this (i.e. it's compatible with the Android Pay loyalty implementation) it could make custom loyalty schemes for individual retailers a lot more attractive, particularly if the loyalty card data is passed along with the payment data in a single tap with no need to manually select the individual loyalty card.

Ideally this could be implemented in a way that'd be accessible to small businesses too, so the small independent coffee shop could replace their stamp cards with a system that doesn't fill up your wallet.

The key for this to be a success though is to make this method accessible to other smartphones, remember Apple Pay itself is just an implementation of contactless payments and the payments side will work with any retailer that accepts contactless, they don't need to do anything specific.

Nectar has been very slow to embrace technology. Neither their iOS or Android apps have the means to display a barcode to be scanned as a loyalty card, they say this is because not all their partners tills are equipped to support this, considering how many years Android and iOS have been around they've had plenty of time to update their equipment. What frustrates me even more is that the tills in my local Sainsbury's have card readers that support contactless but that feature is disabled. It's frustrating having to do Chip & PIN for a £3 meal deal!

Tesco, on the other hand, have an app that displays your Clubcard as a barcode and also has the option of adding coupons. This is not perfect as it doesn't even integrate with Apple Wallet (formerly Passbook) and there's no contactless Apple Pay support but is still an improvement over Nectar.

Dedicated rewards schemes are better value

Let's look at an example with Nectar, most of their rewards are based on the conversion rate 500 points = £2.50 (that's why we use the term 'halfpenny points') and even their most generous offers are laughable. For example at Caffè Nero you get a free cup of coffee for 350 points, that's £350 spend at Sainsbury's or £175 spend in most other partners. My local coffee shop gives you a free cup after buying six cups, so if it was £2.50 a cup you'd only need to spend £15 to get a free cup.

Another amazing Nectar offer is 2 Pizzas for 1000 points, you have to pay for sides and drinks separately, so that's £1000 spend in Sainsbury's or £500 elsewhere. Nando's loyalty card gives you a free full chicken (enough for 2) after 12 visits, plus there's smaller rewards at 3 and 6 visits.

The cinema offer of 2 tickets for 1000 points, is worse than the standard Tesco cinema (if you're earning most points at Sainsbury's) as you can get tickets for 450 points each. East Coast Rewards cinema offers were even more generous. Odeon's own loyalty scheme will give you a free ticket after £60 spend (off-peak) or £120 (peak), once again proving that in-house loyalty schemes are better.

Why are they better? Obvious really, you're always going to want to treat your loyal customers better than some random customer of another partner. Effectively Nectar points are just currency, the Nectar partners have to pay for the points they give out and then when you redeem Nectar pays them. With a scheme like Nectar they can't offer decent freebies to someone spending £255 because you could have earned the points through any of their other partners.

The only drawback of offering separate loyalty schemes is remembering to take the correct cards with you when visiting a particular retailer. If everything is stored on your smartphone and the correct data is automatically sent through NFC (of course this would need to be opt-in) it would make loyalty schemes a lot easier for the customer to manage.

What does this have to do with East Coast Rewards?

Nothing specific, but we believe that improving loyalty schemes in general is better for the customer both in terms of benefits offered and convenience. Nectar has both been slow to embrace technology and also offers rewards that compare poorly with the competition. We're unhappy that Nectar has replaced the excellent East Coast Rewards and every other move they've made to far this year (such as the new apps) have also been extremely poor.