American Express’ digital wallet patent promises to innovate loyalty rewards

American Express may be looking to leverage its position as both payment network and issuer to make loyalty reward points more akin to real money, according to patent documents recently published by the US Patent & Trademark Office. The patent application filed by American Express back in 2014, titled “Third Party Digital Wallet Pay With points”, describes a new system in which individuals with credit card reward points could use them at checkout on e-commerce sites. Reward points would be listed as a payment option alongside the traditional methods we’re used to seeing, such as credit and debit.

In the current rewards ecosystem, most points are brand-restricted. If an individual has 50,000 American Airlines miles, those miles are primarily good for travel with AA and any other airline the company entered into a codeshare agreement with. However, if that customer was to suddenly decide to never fly again, the points become worthless. American Express’ idea is to allow consumers to use reward points when purchasing goods, regardless of whether the company and merchant have a previously established partnership.

While American Express may think the need exists and may profit from it, it still remains to be seen whether this innovation would benefit their customers.

Greater point freedom isn’t always favorable for consumers. A brief look at the landscape of credit card reward programs shows that the more flexible points or miles get, the lower their actual dollar value becomes. In fact, American Express’ flagship Membership Rewards program illustrates it quite well. Though the average value of a single point stands at about one cent, the actual value will vary depending on how users choose to redeem it. If a person were to use the points as credit with an Amex Partner – such as Uber – the value of a single point comes out to that average 1 cent. Instead of going down that route, accountholders could also use their points to retroactively pay down any charge on their American Express credit card bill – no matter the merchant. With this option, individuals receive just 0.6 cents per point, the added freedom causes them to lose 40% of the rewards value.

Due to the freedom it presents, a direct “Pay-With-Points” program is most analogous to the above statement credit redemption method. Therefore, it’s more than likely that if the proposed patent is implemented by Amex, consumers may have to put up with a serious devaluation of their hard-earned points.

On the other hand, such a system may present a way for some individuals to unload points that would otherwise be useless. Like in the previously described American Airlines example, consumers who decide to never fly again could be throwing away hundreds (if not thousands) of accumulated points. When Colloquy and Swift Exchange ran a joint study back in 2011, they found that $16 billion worth of loyalty program rewards go unredeemed each year. More recently, the Telegraph reported that, in Britain, almost $8.45B worth of points have not been redeemed. Research from Collinson Latitude revealed that 82% of consumers would like more choice from their reward programs. At a cost, American Express’ program would theoretically provide that greater number of choices, and make the points easier to redeem for consumers.

Discover Financial – another company that is both a payment network and card issuer – attempted a similar patent back in 2006. In addition to giving out loans and issuing lines of credit, American Express and Discover handle the transfer of funds between the cardholder and merchants. Other popular credit card issuers, such as Chase and Citibank, rely on companies like Visa and MasterCard to handle that part of the business. Their ability to control the entire pipeline puts Amex and Discover in a unique position to pioneer these types of programs.

ValuePenguin contacted Amex to comment on the status of this project, but the company has not yet responded.

Robert Harrow is an analyst for ValuePenguin.com, a research and personal finance website.

[This post originally appeared on ValuePenguin.]