JPMorgan Set to Turn Loyalty Points into Exchangeable Assets

Need to Know

• Affinity Capital Exchange and JPMorgan will allow businesses to exchange loyalty points for a standardized, exchangeable currency.
• This currency could then be traded by fund managers and used to raise funds from lenders and investors.
• Traditionally, loyalty points would be sold directly to banks; using this system, they can be leveraged among investors.

Analysis

JPMorgan is offering hotels, airlines, and other loyalty clients the ability to leverage loyalty programs, such as frequent-flyer points, into assets, according to a press release issued on October 1.

The investment bank has partnered with Affinity Capital Exchange (ACE) to launch the program, which will see points exchanged for a standardized currency, known as Reserve Points, that can then be traded by fund managers. In turn, the point can be used to raise funds from lenders, investors, and operating partners.

“We are always looking for innovative ways to help our clients think strategically about their businesses and create value,” Jim Casey, global co-head of investment banking of JPMorgan, said in a statement announcing the new program. “With ACE, we have the potential to provide our clients and their operating partners a unique opportunity to generate value together, while also enabling access to a wider investor base.”

Andreas Pierroutsakos, a managing director at JPMorgan, said that the program is “essentially creating an asset class.” The ACE partnership will allow businesses the ability to augment secured debt financing; earlier this year, industry analysts estimated that the combined cash value of the top 100 airline loyalty programs is around $200 billion. Traditionally, companies—such as airlines—would sell these points directly to banks, but using the ACE-JPMorgan program, these points can be sold directly to investors, and later traded on the ACE marketplace for the same standardized value.

Leveraging loyalty programs for financing has historically proven lucrative for airlines. In June, United Airlines sold 6.8 billion in bonds and loans backed by its MileagePlus program; last month, Delta Air Lines borrowed a record-breaking $9 billion against its frequent-flyer program.

JPMorgan has made headlines in recent months for a series of partnerships, like that with ACE, that are expanding its financing options for businesses and consumers. In June, the bank announced it had partnered with Sensibill to bring digital receipt tracking to its 38 million app users, and in August, JPMorgan sold its blockchain tech to ConsenSys, which will allow the bank to leverage the latter company’s existing technology in supporting JPMorgan’s ongoing blockchain efforts.