Dynamic Reward Allocation for Merchant Fee Reduction
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Solution Overview
Problem
Customers often incur additional fees when making payments to merchants like charitable organizations due to interchange rates, making financially advantageous decisions less appealing.
Innovation Solution
A computer-implemented method and system that receives user preference data and transaction information to determine and transmit rewards directly to preferred merchants, potentially reducing interchange fees through dynamic reward allocation based on user instructions and merchant criteria.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Adaptability or versatility
If customers make payments to charitable organizations or preferred merchants, then they can support these merchants, but they incur additional interchange fees that reduce financial advantage
Solution Approach 1:
The system converts the harmful interchange fees into a beneficial reward mechanism. When customers make purchases at preferred merchants, the system captures the transaction data and generates rewards that are directed back to those same merchants. This transforms the financial loss from interchange fees into a positive cycle where the fees fund rewards that further incentivize customers to shop at preferred merchants, effectively converting a harmful cost into a beneficial marketing and retention tool.
Solution Approach 2:
The system implements a feedback loop where customer transactions at preferred merchants are monitored, rewards are calculated based on these transactions, and the rewards are then transmitted back to the merchants. This closed-loop feedback mechanism ensures that merchants receive continuous incentives based on actual customer behavior, allowing the system to adapt and optimize reward distribution to maximize both customer satisfaction and merchant support while managing interchange fee costs.
2Ease of operation
If traditional reward systems are used, then customers receive rewards, but the rewards do not effectively support the merchants that need financial assistance
Solution Approach 1:
The system segments the traditional reward pool into merchant-specific allocations based on transaction data. Instead of giving customers a generic reward that they might use anywhere, the system divides rewards into specific portions directed to specific merchants based on where the customer actually made purchases. This segmentation ensures that rewards flow directly to the merchants that need support while still providing customers with tangible benefits from their spending.
Solution Approach 2:
The system introduces an intermediary reward transmission mechanism between customer transactions and merchant support. Rather than directly giving customers cash back or generic points, the system acts as an intermediary that captures transaction information, processes reward calculations, and then transmits targeted rewards to the appropriate merchants. This intermediary layer ensures that the reward system effectively supports preferred merchants while still providing customers with the ease of receiving rewards for their purchases.
Data Source
AI summary
A computer-implemented method for directing transaction rewards may comprise receiving, via a user device associated with a user, user preference data regarding a preferred merchant list including one or more merchants and reward criteria for each of the merchants, wherein the preferred merchant list defines a priority of the one or more merchants and the reward criteria defines a dynamic reward for each of the one or more merchants based on the priority on the preferred merchant list; receiving transaction information from a first merchant; determining, via one or more processors, if the first merchant is one of the one or more merchants on the preferred merchant list; and in response to determining the first merchant is on the preferred merchant list, determining, via one or more processors, a reward based on the transaction information; and transmitting, via the one or more processors, the reward to the first merchant.