Loyalty Register glossary
Points liability
The value of points that members hold but have not yet redeemed, which a business carries as a future cost.
Points liability is the value of the points members have earned but not yet redeemed. A business carries it as a future cost, because each point is a promise of a reward. Starbucks, for example, defers revenue for the Stars its members earn toward free products and records a liability for them.
Updated · By Loyalty Register Editorial TeamRelated terms
How is points liability estimated?
Start with the points outstanding and the expected cost of the rewards they will be used for, then subtract the share the business expects will never be redeemed, called breakage. In a hypothetical program with 1 billion points outstanding and a reward cost of 1 cent per point, the gross liability is $10 million. Assume 15% breakage and the expected cost is $8.5 million; assume 25% and it is $7.5 million. Nothing about the members changed, only the assumption, which is why the assumption needs to be documented and reviewed.
What changes the liability?
Three things move it: new points issued, which add to it; redemptions and expiries, which reduce it; and changes in what a point costs to deliver, for example when reward prices or the catalog change. The breakage assumption sits on top of all three. Treating the liability as one number that only shrinks when members redeem misses most of what moves it.
Who carries the liability in co-brand and coalition programs?
In a co-brand credit card, the bank and the program usually split the cost by contract, so where the liability sits depends on that contract. In a coalition, several partners issue one currency, each reports its own share, and each may use different assumptions, which makes comparisons difficult. Know who owns which part before you sign.
Why does it matter beyond accounting?
The liability is the sum of promises made to members. A program that manages it by making rewards harder to reach lowers the number on paper but weakens the reason members joined. Keep it visible, fund it, and treat changes to reward rules as changes to that promise.