The following comments and
observations are those of Peter Tucker. They were provided
to BarterNews on August 24, 2006. (Peter Tucker is the CEO
http://www.ctex.com a company that has developed
its own proprietary secondary capital instrument known as
�CTEX Private Capital.�)
Just Like Ali Baba, Points.Com Unlocks A 14
Trillion Frequent-Flyer Treasure Trove...
�Travelocity has signed an exclusive agreement with
reward-management portal Points.com to develop �Book with
Points,� a new product that lets loyalty-program members use
miles and points from their various reward programs to
directly book travel services.�
I love the quote from Points
International�s chief executive officer.
most significant challenge that our loyalty program partners
around the world face, as they grow their successful
enterprises, is providing access to rewards for their best
customers,� said Rob MacLean, Points International�s chief
executive officer. �While millions of flights, hotel nights
and other rewards are provided every year, there continues
to be demand for even more access and availability. Our
agreement with Travelocity is uniquely positioned to help
loyalty programs finally follow through on the �any award,
any time� travel promise, and to do so using our two
companies� world-leading technologies.�
this not the same goal of the barter industry? Let�s change
some words in the above statement and pretend the
statement came from the CEO of IRTA�s Universal Currency�
most significant challenge that our exchange program
partners around the world face, as they grow their
successful enterprises, is providing access to trades
for their best customers. Universal Currency will help
barter programs finally follow through on the �any
trade, any time� exchange promise.�
what are these guys doing that we might emulate?
Points.com in reality is not a dissimilar type of
organization to the commercial barter industry�s Universal
Currency, except that points.com has established ways and
means of valuing the different currencies, essentially by
negotiating exchange rates (adjusted cash values)...while at
the same time leaving the customer interface with the
issuing reward point system untouched by the subsequent
trading relationship on points.com.
other words preserving the integrity of the client-customer
relationship of participating partners in the system,
without fostering competition or circumvention worries. No
partner wants or needs to steal the other partners�
customers, on the contrary they want to encourage them to
trade, read on and you�ll see why.
example on points.com 9,037 American Airlines AAdvantage
points exchanges for a $38 gift certificate from Amazon.com
illustrate further, let�s look at a theoretical perspective
of American Airlines in this transaction, as the cash
benefits to Amazon are obvious.
member of the public spends $1.00 on his AA co-branded
credit card and earns one AAdvantage mile credit. What�s
typically happened is that the credit card company passes
through the 2% merchant fee to purchase the mileage credit.
another way in the above transaction American would receive
2% of 9,037 miles, originally customer redeemable script for
predictable seat vacancy now morphed to $181 in cash, since
they started selling airmiles.
AA/Amazon transaction you�ll see that American cashes out by
reducing a 9,037 liability for $38 in cash, leaving $143
profit to be divided between American (the seller) and
Points.com (the facilitator).
American wins two ways: First, they are finding a way to
burn off the frequent-flyer mileage liability (credits) they
issued and they only managed to redeem 4.5 million mileage
credits in 2005. Second, they are making another cash gain
from this secondary transaction.
other words, it�s cheaper for American to pay points.com a
cash fee and provide Amazon $38 in cash for a voucher, than
to redeem the miles they sold for a flight voucher (script
theoretical illustration, American collects $500 in cash for
a 25,000 round trip domestic travel award as its selling
price has a 2% cash value. However, if a $38 cash voucher
from Amazon costs 9,037 AAdvantage miles on points.com, then
the cost to American to redeem (liquidate a 9,037 liability)
is just 0.0042%.
x 0.0042% cash cost = $105.12 American Airlines cost to
liquidate 25,000 milage credit liability, sold originally
for $500 cash.
relate this to what a commercial barter company might charge
for facilitating a $25,000 transaction.
$25,000 trade transaction x 12.5% cash service fee = $3125.
(Trade exchange service fees will vary from 10% to 15%.)
suggesting the barter industry and UC should indulge in
similar transactions, because arguably these are highly
profitable arrangements for all concerned�
point is that now with this latest announcement we are
seeing once again the blurring of traditional barter and
cash systems in highly sophisticated web-based interfaces,
and the partners in this exchange are household names,
trading and exchanging frequent flyer rewards, accommodation
rewards and frequent shopper rewards. All accomplished
without any cash changing hands, as the true cash cost of
the transaction is opaque to the buyer and handled behind
the scenes by the trading partners�
What's not apparent to the traders, who merely think they
are exchanging points of one commodity for another, is that
the actual Points.com currency has an exchange adjusted cash
value, and it is the cash value of the points that is
facilitating the transaction.
complex transaction, but well worth the cost of unlocking
the cash value of frequent-flyer points. But don�t listen to
me, take the words of Points.com Chairman Douglas Carty,
quoted in The Economist Magazine, "almost 14 trillion
frequent-flyer miles had been accumulated worldwide as of
the end of 2004, and the outstanding balances were still
growing by almost 20% annually over the last decade."
using the rule of 72, the foregoing means that the
outstanding balance of the worldwide frequent-flyer currency
will be almost 28 trillion by June 2007.
not a �shell game� but you also have to realize that's not
the cash value of these points either. The cash value is
possibly more like 1-2% of the points value.
$14 trillion = $280 billion dollars, but by next June that
will be $560 billion dollars, and growing.
the bottom line and the vision looking forward?
Perhaps it goes something like this�
spawns barter2.0 where a whole new way of doing business
between seemingly dissimilar partnerships emerges into a
ubiquitous trillion-dollar open trade exchange system.
There�s a new barter system in town called barter2.0.
The velocity is phenomenal with trade account values
doubling every 3.6 years.
The public holds accounts valued a 28 trillion frequent
flyer miles or points in the system ($580 billion).
The partners in the system don�t compete for clients;
they encourage them in reciprocal trade.
The partner cost of the transactions is just 0.0042% in
The public cost of the transactions is zero.
Meanwhile in another scenario the partners in the
traditional closed trade system, the commercial barter
industry, stuck to their guns�
There�s a barter system called UC. (Universal Currency)
The velocity is stagnant, consequently trade account
values shrink each year.
The public (the aggregate business owners worldwide who
are members of barter companies) holds accounts valued
at approximately $6 billion trade dollars in the system.
The partners (barter companies) in the system compete
for clients, they discourage reciprocal trade.
The partner cost of the UC transactions is � of 1% in
cash on the buy and � of 1% in trade on the sell side.
The public (business owner/member of the trade exchange)
cost of the transactions approximates 12.5% cash. (Trade
exchange service fees vary from 10% to 15%.)
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