A loyalty programme issues something that must eventually be honoured. That obligation appears in the accounts and constrains how the programme can be run.

Issuing points defers part of the revenue

When a sale awards points, part of what the customer paid is treated as payment for the future reward rather than for the current purchase.

That portion is held back and only recognised as revenue when the points are redeemed or when they expire unused.

The programme therefore reduces reported revenue at the moment of sale and returns it later, which affects how its cost is understood internally.

The liability is valued by estimating redemption

The amount held back depends on how many points are expected to be redeemed and what each will be worth when it is.

Both figures are estimates drawn from historic behaviour, and both are revised as evidence accumulates, which moves the liability up and down independently of trading.

A programme that becomes more attractive sees redemption rise, which increases the liability and produces a cost that was not present when the points were issued.

Expiry rules exist partly for the accounts

Points that expire remove the obligation and release the deferred revenue, which is why programmes attach expiry conditions to inactive balances.

Several jurisdictions restrict expiry on stored value, and consumer protection rules increasingly require clear notice before a balance is removed.

Where expiry is constrained, programmes manage the liability through the redemption rate instead, which achieves a similar effect less visibly.

Devaluation is the standard adjustment

Changing how many points a reward costs alters the value of every point already issued, reducing the liability without any communication about the balance itself.

Because the point has no fixed monetary value, this is generally within the programme's discretion under its own terms.

The effect on members is a reduction in what their accumulated balance will buy, which is why points held for long periods tend to lose purchasing power.

Why redemption options are structured as they are

Rewards are usually offered in the programme's own goods or services, because those are supplied at cost rather than at retail value.

That gap allows a reward to appear generous to the member while costing the issuer considerably less than its stated worth.

Cash-equivalent redemption removes the gap entirely, which is why it is either unavailable or offered at a markedly worse rate than other options.