Patent Publication Number: US-2006010033-A1

Title: Reward programme points exchange

Description:
FIELD OF THE INVENTION  
      The present invention relates generally to reward programmes, and relates more particularly to the trading of reward points.  
     BACKGROUND  
      Reward programmes are intended to foster consumer loyalty, and can take many forms. Most reward programmes, however, operate to reward retail consumers with “rewards”—usually non-cash or like offers—following demonstrated consumer loyalty or recurring consumer activity. As a simple example, a cafe may provide every fifth cup of coffee free of charge. The consumer is thus encouraged to buy their morning coffee at the cafe each is weekday morning so that their Friday morning coffee will be free.  
      Larger businesses such as banks or airlines usually have more sophisticated reward programmes, through the principle is essentially the same. Typically, reward points are accumulated through the purchase of good or services with the programme provider or selected businesses. Reward points can be redeemed for available rewards, usually consumer goods, airline travel and the like, once sufficient points are accumulated.  
      One view held amongst consumers at large is that reward programmes are not of significant benefit. This view is perhaps attributable to a perceived lack of flexibility relating to the terms and conditions of many reward programmes. Various factors reduce the perceived value of reward programmes, such as a limited selection of rewards, restrictions concerning the redemption of points for rewards, the inconvenience of redeeming points for rewards, the length of time required to achieve rewards, or even the possible loss of reward points through financial failure of the programme provider.  
      A favoured redemption option for participants in reward programmes is travel, usually in the form of air fares. Air travel is also, however, the most expensive reward option for the reward programme provider. Further, reward point air travel is typically fraught with frustration, inconvenience and disappointment for programme participants. Airlines use reward point redemption to manage their load factors, which tends to make seats available at off-peak times and dates that do not match with typical travel schedules. Further, popular routes require booking many months in advance, which can be inconvenient if unforseen circumstances necessitate changes to travel plans. Extra expense or forfeiture of the reward points can result.  
      Reward programmes stipulate terms and conditions, particularly in relation to redemption of reward points. Terms and conditions can be quite involved, and usually involve clauses relating to non-transferability of points between participants. As an example, non-transferability conditions prohibit the possibility of family members consolidating their points to claim rewards. Also, reward points, under many programmes, “expire” if not redeemed within a certain time period.  
      The limited transferability of reward points, and their possible expiry, both serve to limit the rate at which points are redeemed. In many cases, participants leave a programme, and the accumulated points are simply cancelled without ever being redeemed. Despite such restrictions, reward programme providers find that their long-term “redemption” rates are around 80%.  
      Accumulated reward points, eligible for redemption but not yet redeemed, represent a significant non-current contingent liability for programme providers. As an example, the accumulated points liability of credit card reward programmes is estimated to be growing in the vicinity of AU$750 million per annum in Australia, and to a total sum of over US$500 billion in the United States of America.  
      A dilemma for reward programme providers is that their programmes create an expectation of continuity amongst participants: participants expect that their participation in the reward programme will be honoured. Reward programme providers meanwhile face pressure to reduce the cost of providing reward programmes due to competitive pressures. The expectation of programme continuity thwarts restructuring of rewards programmes. Significant changes to reward programmes undermines participants&#39; confidence in the programme and, more seriously, can reduce the reward programme provider&#39;s brand integrity.  
      A need clearly exists, in view of these and other observations, for an improved manner of administering reward programmes.  
     SUMMARY  
      An intermediary or “exchange” that trades in reward points improves the utility of reward programmes for reward programme participants and reward programme providers. Such an exchange acts as an intermediary between reward programme participants and reward programme providers to facilitate trading in reward points by either buying, selling or transferring points from, to, or between participants. Points can be redeemed from the exchange through provision of an offered reward. Transactions can also involve a combination of such transactions. An exchange may operate independently of reward programme providers, or in alliance with a specific reward programme provider.  
      Reward programme participants often have an incentive to purchase points at a premium to their notional value, to supplement their existing points that have been accumulated through previous transactions. Reward programme participants may in many cases wish to increase their accumulated points by purchasing such points, rather than simply accumulating further points by making purchases through the reward programme. Reward programme participants, in this way, can reach points “milestones”, at which a desired reward can be redeemed, by purchase of such points through an intermediating entity.  
      Reward programme providers have a clear interest in suppressing redemption rates, real or effective, as a reduced redemption rate lowers the cost of operating the reward programme. Marginal increases in redemption rates can, however, be offset by reward programme providers purchasing additional points at a discounted rate.  
      As an example, if a reward programme provider can buy points at a discount to their notional value, and also at a discount to the price at which such points can be sourced from alternative providers (that is, wholesale rates at which the provider is charged), a margin exists for reward programme providers.  
      Reward programme providers can reduce their contingent liabilities associated with redemption of reward points by participants. Conversely, participants can more flexibly use and redeem their reward points, encouraging further participation in the reward programme. 
    
    
     DESCRIPTION OF DRAWINGS  
       FIG. 1  is a schematic representation of entities involved in transactions involving reward points conducted via an intermediary between reward programme participants and a reward programme providers.  
       FIG. 2  is a flowchart representing steps involved in such transactions conducted by the intermediary.  
       FIG. 3  is a schematic representation of a transaction of selling reward points to the intermediary.  
       FIG. 4  is a schematic representation of a transaction of buying reward points from the intermediary.  
       FIG. 5  is a schematic representation of a transaction of transferring reward points from one reward programme provider to another reward programme provider.  
       FIG. 6  is a schematic representation of a transaction of consolidating reward points from different reward programme providers and redeeming the consolidated points for a reward.  
       FIG. 7  is a schematic representation of a system architecture supporting intermediated transactions involving reward points.  
       FIG. 8  is a schematic representation of a computer system of a type suitable for use in the system architecture of  FIG. 7 .  
    
    
     DETAILED DESCRIPTION  
      Participating Entities  
       FIG. 1  schematically represents entities involved in the transaction procedures described herein. For convenience, the entity that intermediates transactions involving reward programme participants and reward programme providers is referred to herein simply as an “Exchange”  110 . Such transactions involve the exchange of reward points that are recognized in accordance with reward programmes, as described herein. The reward programme participants are described herein as Card Holders  120 , and the reward programme providers are described herein as Card Issuers  130 .  
      Exchange  110  is able to communicate with both Card Holders  120  and Card Issuers  130 , and also a Reward Manager  140 . The Reward Programme is a contractual arrangement between Card Issuers  130  and their respective Card Holders  120 . Card Issuers  130  make arrangements to support their contractual obligations to Card Holders  120  under the Reward Programme, often via a Reward Manager  140 . As described herein, the Exchange  110  makes similar arrangements, and can rely upon a Reward Manager  140 .  
      The Exchange  110  described herein is independent of Card Issuers  130 , and Reward Managers  140 . The Exchange  110  does not replace current service providers or Reward Programmes, but operates as an adjunct to existing services. The participation of Card Issuers  130  and Card Holders  120  is a matter of choice for the Card Issuer  130  and the Card Holder  120 . The Exchange  110  provides for the buying, selling, trading and redemption of reward points, and effectively offers the Card Holder  120  more flexible use of their reward points than may be available with the Card Issuer  130 .  
      Operational Background  
      Card Issuers  130  charge an annual fee for Card Holders  120  to become members of their reward programme. Points are awarded at the notional value of about one cent for every dollar spent on their credit card. There are variations to this theme, with some Card Issuers  130  awarding  10  points per dollar spent, but with the ten points still having the notional value of about one cent. From time to time, promotions are run with double points, bonus points, and so on. Some Card Issuers  130  award double points on overseas purchases.  
      Card Issuers  130  generally outsource responsibility for the operation of the Reward Programme by contracting Reward Managers  140  to run their Reward Programme. The Card Issuer  130  or Reward Manager  140  sometimes pays external service providers the value or partial value of the points before the points are redeemed. An example is members of reward programmes that are directly linked to airlines.  
      A variety of models can be adopted, and the details may be determined by the economic considerations involved. As an example, some Card Issuers  130  retain control of the funds from the time when card spend occurs until redemption of points with the Card Issuer  130  enjoying the benefit of the “float” until redemption.  
      Reward points are in any case allocated against a reward account of the Card Holder  120  for future redemption on available “rewards”, in accordance with the terms and conditions of the relevant reward programme.  
      Procedural Overview  
       FIG. 2  schematically represents steps involved in the provision of exchange services, via Exchange  110 . Card Holders  120  register with the Exchange  110  in step  210 . Reward programme accounts are monitored on behalf of registered Card Holders  120  in step  220 . Exchange services are offered to Card Holders  120  via the Exchange  110  in step  230 . The offered services include a buy/sell facility, a transfer facility and a redemption facility as described herein in further detail. The Exchange  110  receives and transacts the instructions from Card Holders  120  in step  250 .  
      Transactions with Exchange  
      Card Holders  120  accumulate points from Card Issuers  130  in accordance with the applicable reward programme. As described herein, points may be generally issued at a rate of 1 point for each dollar spent on particular goods or services. The accumulated points issued in accordance with the reward programme have a notional value of 1 cent per point. This notional value reflects the number of points approximately required to redeem rewards of a particular retail value. In other words, approximately 10,000 points might be required for a reward having an approximate value of $100. These values can vary, but a notional correspondence of value exists.  
      Purchases made by Card Holders  120  generate reward points that are allocated against an account of reward points in the name of the Card Holder  120 . This account of reward points is stored at the Card Issuer  130 , and is stored by or accessible by the Exchange  110 .  
      Average redemption rates of points by Card Holders  120  conform to a relatively regular pattern. This pattern is estimated as follows: 10% in year 1, 30% in year 2, and 60% in year 3. These rates are affected by the number of points accumulated in years 1 and 2, as the reward programme members have not accrued enough points to redeem anything significant in the these years.  
      For the transactions described below, illustrative trading rates are intended to compensate for an expected increased redemption rate. That is, the effective redemption rate is reduced. Even in the case of heavy trading in reward points, a 100% redemption rate is unlikely as many Card Holders  120  never redeem points, and points are forfeited when Card Holders  120  have accounts cancelled or closed before all accumulated points are fully redeemed.  
      “breakage” occurs when points reach their “expiry date” and are unredeemed. Most Card holders  120  who use the Exchange  110  can be expected to trade their points at some time, and be active members of the reward programme offered by the Card Issuer  130 . Although the increased utility provided by the “Exchange” causes a reduction in the breakage level, which is typically about 15% to 20% per year, the sharing of revenue streams of the Exchange  110  with the Card Issuers  120  compensates for this reduction.  
      Selling Points to Exchange  
       FIG. 3  schematically represents the sale of reward points from the Card Holder  120  to the Exchange  110 . Card Holders  120  can sell their accumulated points to the Exchange  110  for a cash credit at a discount to their notional value. An indicative rate for the sale of points by Card Holders  120  to the Exchange  110  may be a rate between 15% and 50% of the notional value of the points. A rate of one third of the notional value may be selected; that is, 33%, or one-third of a cent per point. The Exchange  110  receives revenue from the Card Holder  120 , which is shared with the Card Issuer  130 . Effectively, the contingent liability of the Card Issuer  130  is reduced.  
      Reward points that are in the name of a Card Holder  120  can be sold to the Exchange  110 . In this case, the Card Holder  120  instructs the Exchange  110  to buy a certain amount of points from the Card Holder  120 . The Exchange  110  communicates securely with the provider  130  to debit the account of the relevant Card Holder  120 , and pays the Exchange  110  an appropriate amount for “writing off” these debited points. The Exchange  110  then credits a banking account (such as a regular nominated banking account, or credit card) of the Card Holder  120  with a proportion of the amount received from the Card Issuer  130 .  
      Buying Points from Exchange  
       FIG. 4  schematically represents the purchase of reward points by the Card Holder  120  from the Exchange  110 . Card Holders  120  can buy further points from the Exchange  110  at a premium to their notional value. An indicative rate for the purchase of points from the exchange by Card Holders  120  may be a rate between 125% and 350% of the notional value of the points. A premium of 300%, for example, may be selected. Different rates may apply to different volumes of points, so Card Holders  120  effectively receive a discount for bulk purchase. The contingent liability of the Card Issuer  130  increases, but the revenue received by the Exchange  110  is shared with the Card Issuer  130 .  
      Reward points that are in the name of a Card Holder  120  can be supplemented by additional points purchased from the Exchange  110  at a premium. The Card Holder  120  interacts with the Exchange  110 , instructing the Exchange  110  to purchase additional points from a Card Issuer  130 , using a payment facility such as a credit card. The Exchange  110  communicates securely with the Card Issuer  130  to purchase reward points, to the credit of the Card Holder  120 , from the reward programme provider  130 . The Exchange  110  charges the Card Holder  120  and pays the Card Issuer  130  at rates involving a suitable margin.  
      Transferring Points Between Reward Programmes  
       FIG. 5  schematically represents the transfer of reward points by the Card Holder  120 , via the Exchange  110 , between reward programmes provided by different Card Issuers  130 . Card Holders  120  can transfer points between Reward Programmes, at a discount to the notional value of the transferred points. An indicative rate for the transfer of points at the exchange by Card Holders  120  may be a rate between 30% and 70% of the notional value of the points. A discount of 50%, for example, may be selected. A transfer of points is effectively a combination of purchasing and selling points, but with different Card Issuers  130  involved in either side of the transaction.  
      Reward points that are in the name of a Card Holder  120  can be transferred at the Exchange  110  between accounts of Card Issuers  130 . In this case, the Card Holder  120  is instructs the Exchange  110  to buy transfer a certain amount of points from one Card Holder  120  to another Card Holder  120 . Such a transaction is essentially a combination of selling reward points to the Exchange  110 , and buying reward points from the Exchange  110 . Clearly, in this case, the reward points sold and bought are of a different type, and involve different Card Issuers  130 .  
      Redeeming Points for Reward Via the Exchange  
       FIG. 6  schematically represents the redemption via the Exchange  110  of reward points by the Card Holder  120  for a reward. Card Holders  120  can redeem their reward points with the Exchange  110  for rewards. Rewards are provided by a Reward Manager  140 , as specified by the Card Holder  120 . The reward options available to Card Holders  120  are provided by the Reward Manager  140 . The points cost for redeeming points via the Exchange  110 , using the Rewards Manager  140  is based upon a retail cost of the reward, plus a 12.5% points premium for redemption. The notional value of the points, namely 1 cent per point, applies in determining the corresponding points required to redeem the points for the specified reward.  
      Typically, reward points from different Card Issuers  130 , Card Issuer One  130  and Card Issuer Two  130  in  FIG. 6 , are consolidated via the Exchange  110  by the Card Holder  120 . This can provide with Card Holder  120  with enough points to redeem a desired reward.  
      A wholesale-retail margin relating the wholesale cost of the reward to the Exchange  110 , relative to the retail value of the reward, may apply. This provides further revenue to the Exchange  110  that can be shared between relates parties, namely the Card Issuer  130  and the Reward Manager  140 . This wholesale-retail margin is not expected to be available for rewards that relate to airline travel. Accordingly, the revenue model differs if this margin is not available to the Exchange  110 , consequently changing the revenue flows from the Exchange  110  to related parties.  
      Redemption of points for a reward with the Exchange  110  may also involve the purchase of additional points by the Card Holder  120  from the Exchange  110 , as described above, to reach a points milestone at which the reward is available to the Card Holder  120 .  
      Analysis of Operations  
      A notional value of 1 cent per point is described herein. Reward points, however, actually cost a Card Issuer  130  less than this notional value. Contributing factors to this reduction in cost might be contributions made by retailers through transaction fees, wholesale-retail margins and other factors that may be applicable. As an example, reward points have an underlying cost to Card Issuers  130  of 0.8 cents per point. A Card Issuer  130  may, for example, determine that the Card Issuer  130  supports the reward programme to a cost of 0.8 cents per point. Accordingly, the Card Holders  120  are provided, effectively with a level of service that is available for a cost of 0.8 cents per point. A Card Issuer  130  may select another cost of points, such as 0.78 cents per point, or 0.82 cents per point. Generally, internal points cost for Card Issuers  130  might vary from between about 0.75 cents per point to about 0.85 cents per point. The cost per point is indicative only, and can be varied to be any level that offers a level of service acceptable to Card Holders  120 .  
      An effective cost of providing reward points to Card Holders  120 , on a per point basis, is found by multiplying the cost of points by the redemption rate. This relationship is presented in Equation [1] below. 
 
real cost [ rc ]=cost [ c ]×redemption rate [ r]   [1]
 
      Consider an example in which the cost of points (to a Card Issuer  130 ) is 0.66 cents per point, and the redemption rate rises to 95%. Using Equation [1] above, the real cost of providing reward points is 0.63 cents per point, a 17% reduction compared with a cost of 0.8 cents per point indicated above.  
      Table 1 below presents a simplified analysis of the cash flows and “point flows” involved in financing a typical transaction made in accordance with the reward programme.  
               TABLE 1                          Card Holder 120 makes $1000 purchase from retailer using card issued by       Card Issuer 130.       Card Issuer 130 allocates 1,000 reward points to Card Holder 120 in       accordance with reward programme.       Retailer pays 2% (that is, $20) transaction fee on purchase by Card Holder       120.       Card Holder 130 allocates a certain percentage of the transaction fee to       finance the reward programme.       Card Holder 120 redeems 10,000 accumulated points for an electrical       appliance from Reward Manager 140.       Card Issuer 130 incurs a cost of points the from Reward Manager 140 for       supplying the electrical appliance.                  
 
 Revenue Model 
 
      Incoming revenue for the Exchange  110  is shared with the Card Issuers  130  via a series of rebates as described in further detail below. Revenue is generated for the Exchange  110 , while effectively reducing the “point cost” to Card Issuers  130  by passing on a share of this revenue to Card Issuers  130 . Reward Managers  140  are also compensated by the Exchange  110  for providing rewards to Card Holders  120 .  
      Transactions are conducted with the Card Issuers  130  such that points are valued at a common cost of 0.8 cents per point, as an example, and as described herein. A series of rebates are then provided to Card Issuers  130  as agreed between Card Issuers  130  and the Exchange  110 . If certain Card Issuers use a different “cost of points”, 0.78 cents per point as an example, then the rebates available to that Card Issuer  130  can be reduced, or the reward points charged to the Card Holders  120  of that Card Issuer  130  can be varied. A combination of both these measures can also be adopted.  
      Card Issuers  130  have the following revenue streams associated with their relationship with the Exchange  110 . 
          A rebate is paid to the Card Issuer  130  as a proportion of the retail margin on any goods and services redeemed by a Card Holder  120  who deals with the Exchange  110 .     A share of the income from the sale of any points to the Exchange  110  by a Card Holder  120  who redeems points for a discounted cash value of the points.     A share of the income from any points purchased by a Card Holder  120  who purchases points from the Exchange  110  to reach a points “milestone”.     A proportion of the income from Card Holders  120  for subscription to the Exchange  110 . Such subscription fees are proposed, as an example, as $30 per annum for a first reward programme, with a further $10 for each further reward programme nominated.     A profit share of the Exchange  110  can be allocated between Card Issuers  130 , and is calculated on the value of transactions conducted by their respective Card Holder  120 . The profit share may be, as an example, 20% of the profit made by the Exchange  110 .        

      Besides various fees that may be levied on Card Holders  120  (for example, annual fees, transaction fees), revenue can be earned by Card Issuers  130  from margins on trading in points. Each Card Holder  120  who deals with the Exchange  110  may be charged an annual processing fee, for example, $20.00. Additional fees may be charged for additional reward programmes registered with the service. Each Card Holder  120  registered with the Exchange  110  may be issued with a card and PIN to facilitate security of transactions. These margins, using the example figures indicated above, are as follows. 
          Purchase of points from Card Holders  120  (at 0.33 cents per point) and sale of points to providers (0.66 cents per point) provides a margin of 0.33 cents per point.     Transfer of points by Card Holders  120  between programmes (at 0.50 cents per point) and sale of transferred points to providers (at 0.66 cents per point).     Differential rates can apply to different Card Holders  120  in a reward programme. For example, “gold” or “premium” members may be offered a more favourable conversation rate than regular members.        

      There is also, of course, a margin between the wholesale and retail prices of goods and services that are used as rewards and for which points are redeemed. Rewards provided to Card Holders  120  are likely to be subject to the usual wholesale-retail margin that exists for wholesale rather than retail purchases. The margin between wholesale and retail costs may, as an example, be 40% of retail cost. If such a margin is available to the Exchange  110  or Reward Manager  140  via usual wholesale-retail arrangements, the retail price of reward points can be adjusted accordingly before adding a 12.5% points premium described in relation to the examples described herein. The wholesale-retail margin may be greater than 40% of the retail cost, in which case a consequent adjustment in favour of the Exchange  110  results. The price of any item in terms of required points to Card Holders  120  is expected to be based upon the retail cost of the reward, plus a 12.5% points premium. Conversion of the retail cost of the reward to a corresponding points cost is based upon the notional value of the points, namely 1 cent per point, as described herein.  
      The indicative figures described above are negotiated as required between the various entities, and are not definitive or comprehensive.  
      Transaction Conditions  
      The implementation described for the Exchange  110  establishes various transaction conditions that apply to trading in reward points by Card Holders  120 , as described below. These transaction conditions can be varied in form or substance as required. 
      (i) Prices of rewards redeemed by Card Holders  120  have a points cost equivalent to the corresponding retail cost plus a 12.5% points premium. The notional points value of 1 cent per point applies in determining the points cost equivalent.     (ii) The minimum number of points that can be redeemed for cash is 10,000 points ($100) with block increments of 5,000 after the first 10,000 points purchase (namely, $150, $200, etc).     (iii) The minimum number of points that can be purchased to reach a reward milestone is 1,000. The first 5,000 points, or any part thereof, costs three cents per point. Remaining points that are purchased at a rate of two cents per point.     (iv) An annual limit on the monetary amount that can be realised by Card Holders  120  can be established. As an example, a limit of 40,000 points, which would realise $240, may be applied. Such an amount can be directed to subscription to the services of the Exchange  110 , or the reward programme offered by the Card Issuer  130 . 
 
 Example Transactions 
   

      Described below with reference to accompanying tables are various examples of transactions that Card Holders  120  can initiate with the Exchange  110 . The figures selected in each example are indicative only, and are selected to illustrate the transactions that can be initiated via the Exchange  110 . The rates, figures and percentages used in these examples are a matter of commercial negotiation are thus subject to variation as is apparent to one skilled in the art. Such rates, figures and percentages are approximate rather than exact, and can be varied required to achieve the same or a similar commercial objective.  
     EXAMPLE  
     Selling Points to Exchange  
      Table 2 below presents two examples of the sale of reward points to the Exchange  110  by Card Holders  120 .  
                       TABLE 2                          Card Holder initial points account   10,000   50,000       Points sold to Exchange by Card   10,000   50,000       Holder       Value paid by Exchange for points   0.33 cents per   0.33 cents per           point   point       Exchange pays Card Holder for points   $33.00   $165.00       Exchange onsells points   0.55 cents per   0.55 cents per           point   point       Exchange receives payment from Card   $55.00   $275.00       Issuer for cancelled points       Exchange retains a margin of 0.22 cents   $22.00   $110.00       per point       Initial cost of points to Card Issuer at   $80.00   $400.00       0.8 cents per point       Reduction of point cost (0.8 cents less   $25.00   $125.00       0.55 cents per point       New point cost to provider   $55.00   $275.00       Actual redemption rate   100%   100%       Effective redemption rate   55%   55%       Card Issuers reduces Contingent   10,000   50,000       liability associated with points                  
 
      Table 3 below presents two further examples of the sale of reward points to the Exchange  110  by Card Holders  120 . The minimum number of points that are purchased by the Exchange  110  can be set at a lower threshold, such as 10,000 points. Table 3 represents the case in which the Card Holder  120  has 9,000 points or 11,000 points, and sells  10 , 000  points to the Exchange  110  in each case.  
                       TABLE 3                          Card Holder accumulated points with Card   9,000   11,000       Issuer       Points transferred to Exchange   9,000   11,000       Card Holder must have minimum of   1,000   —       10,000 points - additional points required       Card Holder buys required points from   $30.00   —       Exchange (at 3 cents per point)       Card Holder total points sale   10,000   10,000       Exchange revenue from Card Issuers   $72.00   $80.00       (sale of points at 0.8 cents per point)       Exchange total revenue on transaction   $102.00   $80.00       from Card Issuer and Card Holder       Exchange pays Card Holder for received   $60.00   $60.00       points (at 0.6 cents per point)       Exchange net after Card Holder paid   $42.00   $20.00       Exchange pays Card Issuer 50% of balance   $21.00   $10.00       Exchange net profit   $21.00   $10.00       Card Issuer cost of points   $51.00   $70.00       Card Issuer&#39;s cost per points   0.51 cents   0.70 cent       Card Holder points remaining   —   1000                  
 
     EXAMPLE  
     Buying Points from Exchange  
      Table 4 below presents example in which a Card Holder  120  has 60,000 reward points accumulated, and needs an extra 7,500 points to reach a 67,500 points milestone at which a desired reward can be achieved. The example of Table 4 below illustrates a case in which the points are subsequently redeemed for a reward.  
                   TABLE 4                          Card Holder accumulated points on account   60,000       Card Holder buys additional points from Exchange   $200.00       first 5,000 points at 3 cents per point   $150.00       remaining 2,500 points at 2 cents per point   $50.00       Card Holder points on account after purchase   67,500       Retail cost of Card Holder&#39;s selected reward   $600.00       to Card Issuer       Wholesale cost of this same selected reward   $360.00       Wholesale-retail margin   $240.00       Exchange revenue from Card Issuer   $480.00       (sale of 60,000 points at 0.8 cents per point)       Exchange revenue from Card Holder   $200.00       (sale of 7,500 points as above)       Exchange total revenue on transaction from Card   $680.00       Issuer and Card Holder       Exchange total revenue less wholesale cost of   $320.00       reward       Exchange pays 20% of total revenue to Card Issuer   $64.00       Exchange also pays Reward Manager 50% of   $128.00       balance after Card Issuer&#39;s 20%       Exchange net profit   $128.00                  
 
      In essence, the Card Issuer  130  reduces their contingent liability in points held on account on behalf of Card Holders  120 . Card Holders  120  can conveniently achieve points milestones and thus desired rewards. The Exchange  110  generates a net profit on transactions, and indirectly shares a portion of this profit with the Card Issuer  130 .  
     EXAMPLE  
     Transferring Points from One Card Issuer to Another Via Exchange  
      Reward points held by a Card Holder  120  are transferred from a reward programme provided by first Card Issuer  130  to a reward programme with a second Card Issuer  130 . A “transfer charge” applies to the Card Holder  120  as a proportion of the amount of points being transferred. As an example, a rate of 33% is used in the illustrative figures provided below. The first Card Issuer  120  pays the Exchange  110  for the “cancelled” points at their cost value, which are now not the responsibility of the first Card Issuer  120 . Additional points transferred to the second Card Issuer  120  are taken as additional to liability, and the Exchange  110  pays the second Card Issuer  120  at the cost value of the points.  
      When more than one Card Issuer  130 , or reward programme, is involved in the consolidation and accumulation of reward points the cash rebate is 20% of the respective points cost liability of the Card Issuer  130 . This arrangement make the rebate “equal” for all participating Card Issuers  130 . Only two Card Issuers  130  used in the example provided in the example of Table X below. Reward points with more than two Card Issuers  130  can be consolidated by Card Holders  120 .  
      Table 5 below presents an example in which 15,000 points with a first Card Issuer  130  are transferred to a second Card Issuer  130 .  
                   TABLE 5                          Rewards points with Card Issuer One   15,000       Rewards points with Card Issuer Two   30,000       Transfer charge of 33% on transferred points‘   5,000       Rewards points with Card Issuer One after transfer   0       Rewards points with Card Issuer Two after transfer   40,000       Card Issuer One pays Exchange value of transferred   $120.00       points at 0.8 cents per point for 15,000 points       Card Issuer Two for additional liability of   $80.00       transferred points (15,000 less 5,000 charge at 0.8       cents per point)       Total points liability for Card Issuer Two is now   $320.00       40,000 points at 0.8 cents per point       Card Issuer Two points are redeemed by Card       Holder via Exchange on $400 reward       Wholesale-retail margin at 30% on $400 reward   $120.00       Card Issuer Two pays Exchange value of redeemed   $320.00       points at 0.8 cents per point       Exchange pays Rewards Manager wholesale cost   $320.00       plus 50% of wholesale-retail margin       Exchange revenue from Card Issuers One and Two,   $160.00       and wholesale-retail margin       Exchange pays Card Issuer Two 25% of total   $80.00       liability       Exchange pays Card Issuer One 25% of original   $30.00       liability       Exchange retains after outgoings   $50.00                  
 
     EXAMPLE  
     Redeeming Points for a Reward Via the Exchange  
      Table 6 below presents an example in which a Card Holder  120  has 50,000 reward points accumulated, and wishes to redeem points to obtain a $300.00 reward. This requires 30,000 points, plus a 12.5% points premium. Accordingly, the total points required in 33,750 points.  
                   TABLE 6                          Card Holder accumulated points on account   50,000       Card Holder transfers 35,000 points to Exchange   35,000       Card Holder points not used in purchase   1,250       Retail cost of Card Holder&#39;s selected reward   $300.00       to Card Issuer       Wholesale cost of this same selected reward   $180.00       Wholesale-retail margin   $120.00       Exchange revenue from Card Issuer   $280.00       (sale of 35,000 points at 0.8 cents per point)       Exchange revenue from Card Holder   $0.00       (none, as Card Holder supplies all points required)       Exchange total revenue on transaction from Card   $280.00       Issuer and Card Holder       Exchange total revenue less wholesale cost of   $90.00       reward and less points not used       Exchange pays 20% of total revenue to Card Issuer   $18.00       Exchange also pays Reward Provider 50% of   $36.00       balance after Card Issuer&#39;s 20%       Exchange net profit   $36.00                  
 
     EXAMPLE  
     Consolidating, Purchasing and Redeeming Points Using the Exchange  
      Table 7 below presents an example in which a Card Holder  120  has 18,000 reward points accumulated with a first Card Issuer  130 , and  30 , 000  reward points accumulated with a second Card Issuer  130 . The Card Holder  120  wishes to redeem points to obtain a $500.00 reward. This requires 50,000 points, plus a 12.5% points premium. Accordingly, the total points required in 56,250 points.  
                   TABLE 7                          Card Holder accumulated points with first Card   18,000       Issuer       Card Holder accumulated points with second Card   30,000       Issuer transfers       Card Holder has points available via Exchange   48,000       Card Holder requires points for selected reward   56,250       Card Holder requires points balance   8,250       Card Holder buys additional points from Exchange   $215.00       first 5,000 points at 3 cents per point   $150.00       remaining 2,500 points at 2 cents per point   $65.00       Retail cost of reward   $500.00       Wholesale cost of this same selected reward   $300.00       Wholesale-retail margin   $200.00       Exchange revenue from Card Issuers   $384.00       (sale of 48,000 points at 0.8 cents per point)       Exchange revenue from Card Holder   $215.00       (none, as Card Holder supplies all points required)       Exchange total revenue on transaction from Card   $599.00       Issuer and Card Holder       Exchange total revenue less wholesale cost of   $299.00       reward       Exchange pays 20% Rebate to Card Issuer   $59.80       Exchange also pays Reward Provider 50% of   $119.60       balance after Card Issuer&#39;s 20% Rebate       Exchange net profit   $119.60                  
 
 Points Purchased Airfares 
 
      The average spend for a Card Holder  120  to receive a $150 flight is about $15,000. As well as being a member of the reward programme offered by the Card Issuer  130 , the Card Holder  120  is also required to be a member of the reward programme (typically a “frequent flyer programme”) offered by the relevant airline.  
      Every Card Holder  120  who joins the applicable frequent flyer programme costs the Card Issuer  130  1.3 cents per point to support the points transferred by the Card Holder  120  to the frequent flyer programme. A number of Card Issuers  130  offer an alternate service to their Card Holders  120 . Card Holders  120  can purchase an airfare at the current retail price using their points, with the facility to top up any shortfall with cash. This enables the Card Holders  120  to fly at their convenience, providing there is a flight available, with a fully paid and booked ticket.  
      The points pricing of these purchased tickets is, however, significantly higher by a factor of about 50%. By contrast, the flight cost might be $220 rather than $150 for a confirmed booking.  
      If such an option is provided to Card Holders  120  by the Exchange, the Card Issuer  130  would not receive a rebate from the Exchange  110  for the transaction but would be compensated by a 20% profit share as described herein. The Card Issuer  130  is not required to support the points of the airline&#39;s frequent flyer programme at 1.3 cents per point, and also saves about 50% on points cost.  
      Combined Points/Cash Redemption  
      As an alternative to rewards provided by a Reward Manager  140 , rewards may also be available to Card Holders  120  at a retail level. As an example, a combination of reward points and an accompanying cash contribution might be used to “purchase” a reward at a retail store. The retail store can be compensated by the Exchange  110  as agree by the Exchange  110  and the retail store.  
      Accordingly, a point/cash redemption calculator can be provided to Card Holders  120  for calculation of the component points and cash required to obtain a particular reward. Consider an example of a $100 gift voucher from a department store. A premium of 12.5% is charged in the number of points; that is, to a point 12.5% bonus points are provided for every hundred dollars spent. As a discount is received from the supplier, in this case the department store, the total benefit is more likely to be in the vicinity of 25% to 30% on a one hundred dollar reward purchase. Second, in a cash and points mixed purchase of an item from a rewards catalogue, the points premium is still 12.5%.  
      Currently, such mixed transactions are approximately 50% cash and 50% points. A sliding scale can be introduced in the cash/points calculator. Any cash component under 50% attracts a higher points premium rate, operating from a 50% cash component down to a 30% cash component. In this case, 30% represents the minimum cash component, although this can vary depending on the wholesale cost of the reward item. In this context, a further 10% points premium per 5% less cash component down to a minimum of 30% cash component may apply.  
      Table 8 below outlines an example relating to a reward of $1,000 retail price.  
                       TABLE 8                          1.   Cash component 50%   $500           Points component 50% (at 1 cent per point)   562,500       2.   Cash component 40%   $400           Points component 60% plus 20% premium   810,000       3.   Cash component 30%   $300           Points component 70% plus 20% premium   945,000                  
 
 System Architecture 
 
       FIG. 7  schematically represents an architecture used for providing services associated with the Exchange  110 . An Exchange server  710  comprises both a data server  712  and a web server  714 . The web server  714  is connected to the Internet  430 . Card Holder terminals  740 , and Card Issuer servers  750  are able to communicate via the network  730  with the Exchange server  710 , to access information stored on the data server  710 . Computer systems of the type described below with reference to  FIG. 8  are used to provide the Exchange server  710 , Card Holder terminals  740  and Card Issuer servers  750 .  
      The data server  712  stores the information relating to accounts for Card Holders  120 , and administers transactions made by Card Holders  120  and Card Issuers  130  with the Exchange  110 . The web server  714  uses communications software products and other relevant software infrastructure to enable required communications functionality. The data server  712  uses database software products, and other relevant software infrastructure to provide the above-described services to Card Holders  120  and Card Issuers  130 .  
      The Exchange server  710  stores customer data for the Card Holders  120 , and is able to be accessed by Card Holders  120  using Card Holder terminals  740 . Similarly, Card Issuers  130  can also access, via the network  730 , the Exchange server  710 .  
      The computer systems of the Exchange  110 , namely Exchange server  710  is electronically linked with those of the Card Issuers  130 , namely Card Issuer servers  740  so that their respective electronic records are maintained in agreement with each other. Card Holders  120  can access the Exchange  110  to instruct transactions and confirm their current account status.  
      The Exchange  110  facilities the transfer of points between Card Holders  120  in reward programmes. In this respect, transactions performed using the Exchange  110  are reported to all relevant reward programme providers so that Card Issuers  130  can track how many points are on issue to which Card Holders  120 .  
      Computer Hardware  
       FIG. 8  is a schematic representation of a generic computer system  800  that can be used to implement reward points transactions described herein. The computer system  800 , as described below, is suitable for use as an Exchange server  710 , Card Holder terminal  740 , or the Card Issuer server  750 . When used for these different purposes, the performance capabilities of the computer system  800  are adapted as required. The generic architecture of each computer system is essentially unchanged. Modifications are, however, possible. As an example, the Card Issuer server  750  and Exchange server  710 , require greater storage and data processing capabilities compared to the Card Holder terminal  740 . Consequently, the Card Issuer server  750  and Exchange server  710  may use a multiprocessor architecture rather than the uniprocessor architecture represented in the computer system  800  of  FIG. 8 . Further storage devices and memory may be provided in the Card Issuer server  750  and Exchange server  710 , compared to the storage device  855  and memory  850  of the computer system  800 .  
      Computer software executes under a suitable operating system installed on the computer system  800  to assist in performing the described techniques. This computer software is programmed using any suitable computer programming language, and may be thought of as comprising various software code means for achieving particular steps.  
      The components of the computer system  800  include a computer  820 , a keyboard  810  and mouse  815 , and a video display  890 . The computer  820  includes a processor  840 , a memory  850 , input/output (I/O) interfaces  860 ,  865 , a video interface  845 , and a storage device  855 .  
      The processor  840  is a central processing unit (CPU) that executes the operating system and the computer software executing under the operating system. The memory  850  includes random access memory (RAM) and read-only memory (ROM), and is used under direction of the processor  840 .  
      The video interface  845  is connected to video display  890  and provides video signals for display on the video display  890 . User input to operate the computer  820  is provided from the keyboard  810  and mouse  815 . The storage device  855  can include a disk drive or any other suitable storage medium.  
      Each of the components of the computer  820  is connected to an internal bus  830  that includes data, address, and control buses, to allow components of the computer  820  to communicate with each other via the bus  830 .  
      The computer system  800  can be connected to one or more other similar computers via a input/output (I/O) interface  865  using a communication channel  885  to a network, represented as the Internet  880 .  
      The computer software may be recorded on a portable storage medium, in which case, the computer software program is accessed by the computer system  800  from the storage device  855 . Alternatively, the computer software can be accessed directly from the Internet  880  by the computer  820 . In either case, a user can interact with the computer system  800  using the keyboard  810  and mouse  815  to operate the programmed computer software executing on the computer  820 .  
      Other configurations or types of computer systems can be equally well used to implement the described techniques. The computer system  800  described above is described only as an example of a particular type of system suitable for implementing the described techniques.  
      Web-Based Implementation  
      The Exchange  110  can be provided by a World Wide Web (WWW) site, operated by the web server  714  of the Exchange server  710 . The web site has an interface that provides for registration of personal details of Card Holders  120 . Card Holders  120  also register the details of the reward programmes, operated by Card Issuers  130 , in which the Card Holders  120  participate. Card Holders  120  can register the details of more than one reward programme.  
      The data server  712  of the Exchange server stores and updates data provided by Card Holders  120 , and maintains records relating to transactions of rewards points involving Card Holders  120  and Card Issuers  130 .  
      Electronic Funds Transfer Network Implementation  
      Services provided by the Exchange  110  can be accessed in one implementation using a financial services network  730 , such as an electronic funds transfer (EFT) network. In this case the Card Holder terminals  740  are not personal computers of the type described in relation to computer system  800 . Instead, the Card Holder terminals can be Electronic Funds Transfer at Point of Sale (EFTPOS) terminals. EFTPOS terminals typically have a magnetic card reader for reading magnetic cards provided by a user, a display for displaying messages to the user, and a keypad for entering data prompted by the display.  
      EFTPOS terminals are typically provided at retail counters to facilitate electronic payments via debit and credit cards. Users swipe their debit or credit card through the magnetic swipe card reader to allow the reader to access account and other details encoded in the magnetic strip of the card.  
      An example of an EFTPOS terminal is the Keypay EFT terminal (K17i) model supplied by Keycorp Limited of Sydney, Australia. As well as accepting magnetic strip cards, the abovementioned K17i model also accepts smart cards to facilitate electronic transactions via the EFT network.  
      In an EFT-based service channel, a Card Holder  120  can use a card, such as a magnetic stripe card or smart card, issued by the Exchange  110 . The card issued by the Exchange  110  records the account details of the Card Holder  120  with the Exchange  110 , so that the Card Holder  120  can be identified by the Exchange  110  details when the Card Holder  120  uses the card with the EFTPOS terminal.  
      The Card Holder  120  can be prompted to enter a PIN, if applicable, to authenticate them as the owner of the card, as is provided for with debit card transactions using the EFT network. Instead of paying for a retail transaction using a debit or credit card, however, the Card Holder  120  can pay for the relevant goods or services using points held on account with the Exchange  110 . The point of sale staff checks the applicable number of reward points for approval by the Card Holder  120 .  
      The reward points used by the Card Holder  120  to “purchase” the reward are cancelled at the Exchange  110 . The retailer who has provided the reward to the Card Holder  120  is appropriately compensated by the Exchange  110 , which is compensated by the Card Issuer  130  as generally described herein.  
      Points Accounting  
      Reward points are issued to Card Holders  120  by Card Issuers  130  in accordance with the terms and conditions of the relevant reward programme. Details of reward points accumulated by Card Holders  120  are stored by the Card Issuers  130  in their records, typically in an electronic manner in a Card Issuer server  750 . An account statement of accumulated reward points is, typically, regularly provided to Card Holders  120  by Card Issuers  130 . Typically, a catalogue of reward options available to Card Holders  120  is also regularly provided so that Card Holders  120  can redeem their points as the Card Holders  120  wish.  
      Some Card Issuers  130  may provide a facility to allow Card Holders  120  to electronically access an account statement of their accumulated reward points held with the Card Issuer  130 . In many cases, rewards can be redeemed via a telephone call centre facility provided to Card Holders  120 . Operators staffing such telephone call centre facilities typically have access to the account details, including the accumulated reward points, held by the Card Holders  120 .  
      When Card Holders  120  register with the Exchange  110 , the Exchange  110  can arrange with the one or more Card Issuers  130  with which the Card Holder  120  is involved to maintain details of reward points account held by the Card Holder  120 . A periodic secure electronic data transfer can be arranged to ensure that the account of reward points stored with the Exchange  110  matches the account of reward points stored with the Card Issuer  130 . The data transfer need not be made via electronic transmission but, may, for security reasons, be achieved through physical transfer of a storage medium such as disk media. Similarly, “live” electronic access may be adopted rather than period electronic data transfer.  
      When the Exchange  110  intermediates transactions that have the effect of “creating” or “destroying” reward points, the reward points account recorded with the Card Issuer  130  needs to be updated accordingly. Consequently, the above-described data transfer operates in both directions so that the records of the Exchange  110  and the Card Issuer  130  both correctly reflect the reward points held by or owing to the Card Holder  120 .  
      When points are issued to a Card Holder  120  by the Exchange  110 , the number of reward points in the points account held by the Card Holder increases. Records maintained by the Exchange  110  and the Card Issuer  130  are undated accordingly. The Card Issuer  130  holds a liability associated with the reward points issued to the Card Holder  120 , as the points have value by virtue of their ability to be redeemed with the Card Issuer  130  in accordance with the reward programme, or via the Exchange  110  as described herein.  
      When the Exchange  110  issues reward points to a Card Holder  120 , the Card Issuer  130  recognizes these additional reward points under the reward programme. As the Card Issuer  130  assumes additional contingent liability associated with the reward points, the Card Issuer  130  is compensated accordingly as described herein. The Card Holder  120  pays for the additional reward points as also described herein.  
      Converse observations apply in relation to reward points that are cancelled by the Exchange  110 . Records maintained by the Exchange  110  and the Card Issuer  130  are undated accordingly. The Card Issuer  130  reduces a liability associated with the reward points issued to the Card Holder  120 .  
      Nature of Points Transfer  
      Transactions described herein involve issuing and cancelling reward points by the Exchange  110  to and from Card Holders  120 . This issuing and cancelling of points is described herein with reference to the “selling” and “buying” of reward points to assist an understanding of the associated transactions. Similarly, transactions of the Exchange  110  with the Card Issuer  130  involve the creation or destruction of a liability (to honour reward points) owned by the Card Issuer  130  in accordance with the reward programme.  
      More particularly, the issue of reward points by the Exchange  110  to the Card Holder  120  involves creating a corresponding liability owned by the Card Issuer  130 . Conversely, the cancelling of reward points by the Exchange  110  involves destroying a corresponding liability owned by the Card Issuer  130 . The creation and destruction of such reward point liabilities is described herein with reference to the “selling and “buying” of reward points to assist an understanding of the associated transactions. The creation and destruction of such reward point liabilities is also described herein with reference to the “accepting” and “cancelling” of reward points liabilities to assist an understanding of the associated transactions. In the context of the Card Issuer  130 , the associated change in reward points is described such that the reward points issued to the Card Holder  120  by the Exchange  110  are “recognized” by the Card Issuer  130 , and the reward points cancelled by the Exchange  110  are “forfeited” by Card Holders  120 .  
      The issuing and cancelling of reward points is initiated by Card Holders  120  following an offer by the Exchange  120  to enter such transactions as described herein. The Exchange  110 , which intermediates in transactions involving the Card Holders  120  and Card Issuers  130 , accepts requests from Card Holders  120  to proceed with such transactions. Similar considerations apply to the transfer or redemption of reward points. An arrangement exists between the Exchange  110  and the one or more Card Issuers  130  that transactions requested by Card Holders  120  of the Exchange  110  are acted upon by the Card Issuers  130  as agreed with the Exchange  110 .  
      Nature of Cash Transfers  
      Exchange  110  intermediates transactions as described herein. Points are issued or cancelled, as described above. Reward point liabilities are created or destroyed as points are issued or cancelled. Cash or like consideration is also transferred as a result of transactions. Cash or like consideration is money that is transferred between entities involved in the transaction.  
      Cash or like consideration includes any cash-like consideration paid to another entity. Cash or like consideration encompasses actual cash, but can also be transferred as credit or debit items appearing on credit cards or debit cards. Deposits or withdrawals from banking accounts or similar facilities can also provide a means of transferring cash or like consideration between entities.  
      Typically, a credit item or debit item on a credit or debit card can be used to transfer cash or like consideration to or from Card Holders  120 . Direct deposit or withdrawal facilities may be used to transfer cash or like consideration to or from Card Issuers  130 . The transfer of cash or like consideration may not be simultaneous with a transaction, but may be made at, for example, a nominated accounting period, such as the end of a calendar month.  
      Further, transfer cash or like consideration to or from Card Issuers  130  can involve different monetary amounts, possibly transferred at different times. As an example, cash or like consideration may be paid for the cost of a point liability at 0.8 cents per point as described herein, and a later series of one or more rebates subsequently paid. Other variations are of course possible.  
     CONCLUSION  
      Various alterations, modifications and additions can be made to the techniques and arrangements described herein, as would be apparent to one skilled in the relevant art.  
      While a computer terminal-based implementation is described above, access to Exchange  110  services could be provided via a telephone voice interface, or through an existing electronic exchange network, such as automatic teller machines. Public kiosk-based implementations are also possible.  
      Further, the techniques described herein can be implemented with the use of smart cards. A credit card, which is provided as a smart card, may store a current record of reward points accrued by the holder. Historical information, such as that relating to previous transactions or in-store redemption of reward points, can also be stored on the smart card. Transactions may be performed, for example, using an automated teller machine (ATM).  
      Other features are also possible. For example, while the primary function of the Exchange  110  is to exchange reward points, other “value-add” services can be provided to Card Holders  120 . One example relates to trading in options and futures for underlying reward points.