Loyalty glossary · 2. Accounting and finance (25)
Float
Float is the value of loyalty points that have been issued to members but not yet redeemed, and which the operator carries as a liability on its balance sheet until the points are used or expire.
Float is not a free loan from members, and a programme that treats it as one is mispricing its own promise. Under accrual accounting the value of unredeemed points sits as a liability, and ASC 606 requires that liability to be measured at the standalone selling price of the points. Until a point is redeemed or expires, the operator owes the member something real.
The trap is valuing float at redemption cost rather than at the price the member paid for it. Operators prefer the lower number because it shrinks the balance sheet, but ASC 606 does not allow that choice. The standard requires the transaction price to be allocated between the goods sold and the points issued, and the points allocation is the float. A programme that understates that allocation is deferring less revenue than it owes.
Work the arithmetic on a hypothetical programme to see why duration matters. A programme issues 600 million points in a year and values each point at 1 cent on redemption, so it books a liability of 6 million dollars. Assume the float is held for 24 months on average, and the operator's cost of capital is 3 percent a year. The financing benefit is then 360,000 dollars. Stretch the average redemption lag to 30 months and the benefit rises by 90,000 dollars with no change in points issued.
Award availability is the operational face of float. When the outstanding liability grows faster than the programme's capacity to deliver awards, the operator faces an ugly choice. It can release revenue by assuming more breakage, which is aggressive under ASC 606, or it can restrict award seats and redemption inventory, which breaks the promise. Neither is invisible to members for long. The honest response is to slow earn rates or revalue the currency, because the float is the forecast, not the cure.
Float and breakage are not the same number, and they answer different questions. Float is the gross outstanding value of points issued. Breakage is the portion of that float the operator expects will never be redeemed. ASC 606 permits breakage recognition only when it is highly probable or proportionally as redemptions occur, depending on the model chosen. A programme that records breakage before the evidence supports it is not reducing float, it is hiding a loss.
Float is therefore not a balance sheet embarrassment to be minimised. It is the deferred value proposition made visible. A well run programme knows its float duration, prices its earn rates against that duration, and lets award availability follow from actual redemption capacity rather than from a wish to shrink the liability. Anything else is an accounting decision wearing a loyalty strategy costume.