Special Report: For companies that operate a successful loyalty rewards platform, the profits can be pretty lucrative.

One only has to look at the success of an operation such as Qantas’ Frequent Flyers program, which contributes hundreds of millions to the bottom line and provides a simple mechanism for the airline to increase free cash flow.

And along with being commercially viable, it’s also a great way to drive customer engagement.

But a look at ASX companies in the space shows that while the concept works, executing a profitable strategy is easier said than done.

And speaking with Stockhead recently, Nigel Finch from Saki Partners highlighted the struggles of listed small caps to get traction in the market.

There are two listed stocks currently active in the space – Rewardle (ASX:RXH) and IncentiaPay (ASX:INP), which have market capitalisations of just $2m and $5m respectively.

“Both companies are struggling with declining revenues and cash-flow issues,” Finch said.

“Rewardle’s bottom line is being propped up by an R&D grant. IncentiaPay has higher revenues (around $65m) but it’s running a low-margin business model and is currently loss-making.

“So while both those platforms have tried to enter the sector, they really haven’t had any success at monetising the platform.”

The third company in the space – Mobecom (ASX:MBM) – is currently suspended from the ASX.

Despite those challenges, Finch said the profit numbers from successful loyalty programs such as Qantas show there’s money to be made with the right strategy.

Software company Reffind (ASX:RFN) is one player looking to realise that potential, through its strategic stake in blockchain rewards platform Loyyal.

The San Francisco-based company recently signed a three-year commercial production vendor agreement with Emirates, the world’s largest international airline.

While Qantas generates annual profits of around $400m from its 12 million-strong Frequent Flyer network, Emirates has more than 25 million members signed up to its Skyward Miles program.

As an indication of Loyyal’s potential to be a material contributor to Reffind’s business, Finch highlighted that RFN’s 15 per cent stake was valued at $3.28m in its audited 2019 financial report.

That number comfortably exceeds Reffind’s current market capitalisation of around $2m.

Having now raised almost $9m from investors, Loyyal plans to leverage its strategic partnership with Emirates to grow market share with other major airlines.

The application of Loyyal’s blockchain technology to streamline in-house management of major reward and loyalty platforms was highlighted at a conference held by the World Economic Forum in January this year.

“Blockchain is such a revolutionary invention and the loyalty industry is the perfect application for it. Our team have worked very hard for five years to get a product that is viable on the market, that is accepted and proven to add value to the market,” Loyyal CEO Gregory Simon recently told Stockhead.

“This is going to be an excellent year for us to show the growth [achieved by Loyyal] and get the public excited about what we’ve built.”

This story was developed in collaboration with Reffind, a Stockhead advertiser at the time of publishing. This story does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.