Every loyalty programme eventually has this conversation with finance, usually in year two: someone pulls up the balance sheet, sees a growing provision for unredeemed points, and asks why it's treated as a liability at all. Members didn't spend it. Doesn't that make it profit?
It doesn't, and treating it that way is how programmes get themselves into trouble.
What "breakage" actually is
Breakage is the portion of issued points that never gets redeemed — expired, forgotten, or sitting in balances too small to be worth spending. In most retail and hospitality programmes it lands somewhere between 15% and 30% of issued value, though the number swings hard by sector: a hotel programme with high-value redemptions and engaged members breaks less; a mall programme with thousands of small, inactive balances breaks more.
The mistake is booking that percentage as savings the moment points are issued. Until a point has actually expired or you can demonstrate — with real cohort data, not an assumption — that it will never be redeemed, it's a liability sitting on your books. Auditors treat it that way. Your finance team should too.
Where programmes get the modelling wrong
Using an industry benchmark instead of your own cohorts. A 20% breakage rate from a retail case study means nothing for a hotel loyalty programme where the average member is a repeat business traveller. Breakage has to be modelled from your own redemption history, segmented by member tier and acquisition channel, not lifted from a slide deck.
Ignoring the expiry mechanic's effect on behaviour. A hard 12-month rolling expiry produces a very different breakage curve to a "points expire after 24 months of inactivity" rule. Change the mechanic and the historical breakage rate stops being predictive — you need to remodel, not carry the old number forward.
Not separating liability by vintage. Points issued this quarter and points issued eighteen months ago carry different redemption probabilities. A single blended liability number hides which cohort is actually driving the outstanding balance, and makes it much harder to forecast the provision forward.
Forgetting partial redemptions. A member who redeems 40% of a balance and lets the rest lapse doesn't fit cleanly into "redeemed" or "broken." Programmes that don't track partial burn end up overstating either the liability or the breakage, depending on which way they round.
What a defensible model actually needs
A liability model finance will sign off on needs, at minimum:
● Redemption curves by cohort — how quickly each acquisition cohort burns points over its first 24 months, refreshed quarterly as new data comes in.
● A live outstanding balance, not a period-end estimate — the ledger should be able to tell you, at any moment, what's owed and to whom.
● Expiry rules that are enforced consistently in the engine, not adjusted case-by-case for VIP members, because every manual override breaks the model that assumes the rule is being followed.
● A breakage assumption reviewed at least twice a year against actual outcomes, and adjusted when it drifts.
This is also where the earn rate and the liability model have to talk to each other. If your rules engine issues points faster than redemption capacity in your rewards catalogue can absorb, breakage climbs — not because members are disengaged, but because there's nowhere for them to spend. That's not a finance problem to fix after the fact; it's a programme design problem.
Why this matters beyond the audit
A clean liability model isn't just for the year-end sign-off. It's the number that tells you whether a promotion is actually accretive. A "triple points weekend" that looks like a marketing win can quietly load the balance sheet with liability that never gets redeemed and never should have been booked as an expected cost saving.
Get the model right and it becomes a planning tool: you can see which member cohorts are sitting on dead balances worth reactivating, which reward tiers are too expensive relative to redemption rates, and where the catalogue needs refreshing before members stop trying.
Get it wrong, and the first time it surfaces is in an audit — which is the worst possible moment to discover your breakage assumption was three years out of date.
Why choose Walaa
A liability model is only as good as the ledger underneath it, and that's where most platforms fall short — batch updates, manual reconciliation, and a "close enough" balance that finance can't fully trust. Walaa's points and wallet engine is a real, auditable ledger down to the transaction: multi-currency points, partial expiry, holds, refunds and reversals, all traceable. Redemption curves and outstanding liability are available live, not reconstructed at quarter-end, and the analytics module surfaces cohort-level breakage and incremental revenue in the same view finance already asks for. Across 46 live programmes and 2.4M enrolled members, that's the number that's held up to audit.
As a custom loyalty platform built for GCC operators, Walaa keeps your liability model live and defensible instead of a quarterly spreadsheet exercise.
