There are a wide variety of awards available for point redemption, from travel to gift cards to commercial goods. And apparently now it is time to add corporate equity to the list. Stock for points is coming and there are a couple companies working on making it happen.
The idea is pretty much the same as any other transaction – assign the points a cash value and exchange them for equity at that price point – but there are a whole bunch of differences that make it much more interesting than it appears at first blush. One of the companies that has built a system to power such transactions is suggesting that the stock "purchase" is a purchase being made with points that are not taxable (i.e. earned as a rebate) so the purchase is a non-taxable transaction. No word on the cost basis, but there could be some interesting value there.
The other interesting bit is that it appears the system is designed to only allow trading the points for stock in the company which issued the points. So it isn’t like the points become true currency for any stock transaction. This also means that when the company redeems the points they get to cut their liabilities against the outstanding points AND increase the equity value of the company at the same time. No doubt that this is a good thing for the companies.
The real question is whether it is at all useful to consumers. There is plenty of up-side to the company, but that’s not what will necessarily drive the success of the product. A reasonable valuation of the points for the transaction would be one component that would make the option a success. I’ve seen no examples of the product in the wild yet, so it is hard to tell what the valuation point is going to be, but it is reasonable to expect that it will be more towards the gift card price point than the price the companies sell the points at.
And then there’s the part where stocks are an investment vehicle that can easily lose value. The systems are designed to prevent flipping of stocks and to otherwise slow the transaction process so these aren’t going to be quick sale opportunities.
It is great to see new ideas coming out and even better that some of them are actually getting a chance in the industry. But it is hard to see the value until there are a lot more details available and the product is actually in use somewhere.
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