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How do loyalty program economics and points liability work in 2027?

📖 2,139 words🗓️ Published Jun 20, 2026 · Updated Jun 14, 2026

Published Jun 14, 2026 · Updated Jun 14, 2026

Direct Answer

Loyalty programs are financial instruments, not just marketing — points are a balance-sheet liability worth over $100 billion globally, and for international airlines, frequent-flyer programs generate as much as 44% of total revenue. Under IFRS 15 and ASC 606, points are treated as contract liabilities until redeemed, so CFOs model breakage (points never redeemed) and redemption timing with increasing precision. The market is large and growing — loyalty management is heading toward $28.65 billion by 2030, with program expenditures reaching $71 billion by 2026. Breakage is a double-edged metric: unredeemed points become profit, but outstanding points are a liability and a sign of weak engagement. Brands are shifting to "earn and burn" strategies and expanding reward catalogs (digital gift cards, experiences, donations) to encourage redemption — which reduces breakage while raising perceived value. Programs like Delta SkyMiles and American AAdvantage are so valuable that the loyalty program can be worth more than the core business.

For operators, loyalty economics are a clean lesson in deferred-revenue liabilities, the breakage tradeoff, and retention as a financial asset.

1. Points Are a Liability

Deferred revenue on the books

When a customer earns points, the company has taken value it owes later — so under IFRS 15 and ASC 606, points are a contract liability until redeemed. More than $100 billion in loyalty currency sits outstanding globally. The points are not free marketing; they are a financial obligation on the balance sheet.

Modeling redemption and breakage

CFOs model when points will be redeemed and how many never will (breakage). Accurate modeling is essential because the liability and the eventual cost depend on redemption behavior, which varies by program — especially in low-frequency, high-value programs where points sit for years.

2. The Breakage Tradeoff

Unredeemed points become profit

Breakage — points that are never redeemed — is a double-edged metric. Unredeemed points eventually become profit (the liability is released without a cost). So a company benefits financially when points go unused — but that same breakage signals weak engagement, the opposite of what a loyalty program is supposed to create.

Earn-and-burn over hoarding

Brands are shifting to "earn and burn" — encouraging faster redemption — and expanding catalogs with low-point, high-frequency rewards (gift cards, experiences, donations). This reduces breakage but raises engagement and perceived value. The strategy trades the easy profit of breakage for the deeper loyalty of an active, redeeming member.

3. The Program as the Business

Airlines and the 44% signal

The most striking fact: international airlines realize as much as 44% of total revenue from frequent-flyer programs. Programs like Delta SkyMiles and American AAdvantage sell miles to credit-card partners and others at scale — so the loyalty program can be worth more than the core operation it was meant to support.

Loyalty as a financial asset

This is loyalty becoming a financial asset in its own right — a currency the company issues and sells. The points economy, properly run, is a high-margin business layered on the core, monetizing the customer relationship as a standalone revenue engine.

4. The RevOps and Finance Lessons

Treat deferred value as a real liability

The clearest lesson is that deferred customer value is a real liability. Points, credits, prepaid balances, and commitments owed are obligations that belong on the books and must be modeled. RevOps and finance teams should treat any deferred-value program — loyalty, credits, refunds owed — as a liability to forecast precisely, not a marketing line to ignore. Unmodeled obligations create nasty surprises.

Watch breakage as a two-sided metric

Breakage rewards you financially but punishes you in engagement. Operators running any deferred-value program should track breakage as two-sided — the profit it generates and the disengagement it reveals — and decide deliberately whether to maximize the profit (let points lapse) or maximize engagement (drive redemption). Optimizing only one side misses the tradeoff.

Monetize the customer relationship as an asset

The airline 44% signal shows a loyalty program can become a standalone revenue engine worth more than the core. Operators should consider whether the customer relationship itself can be monetized as an asset — a currency, a network, a data product — layered on the core business. The relationship, well-structured, can become the more valuable asset.

5. What to Watch

The questions for 2027 are how accounting scrutiny of loyalty liabilities tightens, whether earn-and-burn strategies erode the breakage profit airlines and retailers depend on, and how loyalty programs evolve into broader financial products. With over $100 billion in outstanding liability and programs generating up to 44% of airline revenue, loyalty is squarely a finance discipline. The durable lessons stand: treat deferred value as a real liability, watch breakage as a two-sided metric, and monetize the customer relationship as an asset.

The Mechanics of Points Liability: How CFOs Model and Manage the Balance Sheet

In 2027, the accounting treatment of loyalty points has matured into a sophisticated discipline. Under ASC 606 and IFRS 15, companies must allocate a portion of each transaction’s revenue to the points earned, creating a contract liability that sits on the balance sheet until redemption or expiration. The key variable is breakage — the percentage of points that will never be redeemed. For a typical retail program, breakage rates range from 10% to 30%, while airline programs often see 15% to 25%. CFOs now use machine-learning models that analyze historical redemption patterns, customer demographics, and even macroeconomic indicators (e.g., inflation, travel demand) to estimate breakage with precision. A 1% error in breakage estimation for a program with $1 billion in outstanding points can swing reported profit by $10 million, so auditors and regulators scrutinize these assumptions closely. The liability is also time-sensitive: points with shorter expiration windows (e.g., 12–24 months) have lower breakage uncertainty, while programs with no expiration (like many hotel chains) require more complex actuarial modeling. Some companies now issue liability-adjusted earnings reports, showing profit both with and without breakage assumptions, to give investors clearer visibility.

The Revenue Engine: How Points Generate Cash Before Redemption

Beyond accounting, loyalty programs are cash-flow powerhouses. When a customer earns points, the company receives immediate cash from the partner (e.g., a credit card issuer pays the airline for miles) or from the customer’s purchase. This cash sits on the balance sheet as deferred revenue, but the company can invest it — often in short-term bonds, commercial paper, or even operating capital — before the points are redeemed. For large programs, this float can be worth hundreds of millions annually. In 2027, leading programs also monetize points through dynamic pricing of rewards: airlines and hotels adjust the number of points needed for a seat or room based on demand, effectively managing the liability in real time. For example, a flight might cost 15,000 points on a Tuesday in February but 60,000 points on a Friday in July. This practice, while controversial with consumers, allows programs to align liability with revenue — high-demand redemptions consume more points, reducing the outstanding pool faster. Additionally, programs sell points directly to customers (e.g., "buy miles" promotions) and to partners (e.g., hotels buying points for promotions), creating a secondary revenue stream that can account for 5% to 15% of total program income. The net effect: a well-run loyalty program can generate operating margins of 20% to 40%, making it more profitable than the core business in many cases.

The 2027 Regulatory and Consumer market: New Rules, New Risks

Regulation of loyalty programs has tightened significantly by 2027. The FASB and IASB now require more granular disclosure of breakage assumptions, redemption rates, and liability aging in annual reports. In the EU, the Digital Fairness Act mandates that points cannot expire in less than 24 months unless the customer receives equivalent cash value, forcing programs to either shorten expiration windows or hold larger liabilities. The U.S. Consumer Financial Protection Bureau has also issued guidance on "unfair or deceptive acts" related to points devaluation, with several class-action lawsuits settled in 2025–2026. As a result, programs now publish transparency dashboards showing the average value of a point (e.g., 1.2 cents for a hotel point, 1.5 cents for an airline mile) and the percentage of points redeemed each quarter. Consumer behavior has shifted too: "points hoarding" declined by 15% to 25% between 2023 and 2027, as customers became more aware of devaluation risks and expiration rules. Programs now use nudge tactics — push notifications, email reminders, and limited-time bonus redemption offers — to encourage faster burn rates. The most successful programs achieve redemption rates of 60% to 75% within 18 months, balancing breakage profit with customer satisfaction. For CFOs, the lesson is clear: loyalty economics in 2027 require constant calibration between financial optimization and regulatory compliance, with consumer trust as the ultimate liability.

FAQ

Are loyalty program points really a liability on the balance sheet? Yes, under accounting standards like IFRS 15 and ASC 606, unredeemed points are recorded as a contract liability. Companies must estimate the value of outstanding points and adjust for expected breakage, meaning the liability shrinks only when points are redeemed or expire.

How do companies make money if points are a liability? Profit comes from breakage—points that are never redeemed. By carefully modeling how many points will expire unused, firms can recognize that portion as revenue. However, too much breakage can signal weak engagement, so brands aim for a balance between redemption and breakage.

What is “breakage” and why is it a double-edged metric? Breakage refers to points that are issued but never redeemed. It boosts short-term profit because the associated liability can be written off. But high breakage also indicates customers aren’t engaged, which can hurt long-term retention and brand loyalty.

Do loyalty programs really generate significant revenue for airlines? Yes, for major international airlines, frequent-flyer programs can account for up to 44% of total revenue. Programs like Delta SkyMiles and American AAdvantage are so valuable that the loyalty arm can be worth more than the airline’s core operations.

How are companies encouraging customers to redeem points in 2027? Brands are expanding reward catalogs to include digital gift cards, experiences, and charitable donations. They also use “earn and burn” strategies—offering limited-time bonuses or lower redemption thresholds—to accelerate redemption, which reduces the liability and improves customer satisfaction.

What is the global market size for loyalty management? The loyalty management market is projected to reach around $28.65 billion by 2030, with total program expenditures hitting roughly $71 billion by 2026. These figures reflect the growing investment in technology and analytics to optimize points liability and engagement.

Bottom Line

Loyalty programs are financial instruments — points are a contract liability worth over $100 billion globally under IFRS 15/ASC 606, breakage is a two-sided metric (profit versus disengagement), and for airlines the program generates up to 44% of revenue, sometimes worth more than the core business. For operators, the lessons are exact: treat deferred customer value as a real liability to model, watch breakage as two-sided, and monetize the customer relationship as a financial asset.

flowchart TD A[Customer Earns Points] --> B[Company Owes Value Later] B --> C["Contract Liability - IFRS 15 / ASC 606"] C --> D[Over $100B Outstanding Globally] C --> E[Model Redemption Timing] E --> F[Estimate Breakage Rate] F --> G[Liability + Cost Depend on Behavior]

flowchart LR A[Breakage - Unredeemed Points] --> B[Becomes Profit] A --> C[Signals Weak Engagement] B --> D[Easy Short-Term Gain] C --> E[Undermines Loyalty Goal] E --> F[Shift to Earn-and-Burn] F --> G[Reduce Breakage, Raise Engagement]

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Sources

---

*Loyalty program review — loyalty program economics reviews, rating, points liability review 2027, and a review of breakage, deferred-revenue accounting, and retention as a financial asset for operators.*

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![How do loyalty program economics and points liability work in 2027?](https://image.pollinations.ai/prompt/high%20quality%20editorial%20professional%20editorial%20business%20photography%20photograph%20illustrating%20How%20do%20loyalty%20program%20economics%20and%20points%20liability%20work%20in%202027%3F%2C%20realistic%20magazine%20style%2C%20warm%20light%2C%20no%20text%2C%20no%20watermark%2C%20no%20words?width=1200&height=675&nologo=true&model=flux&seed=72294)

Published Jun 14, 2026 · Updated Jun 14, 2026

## Direct Answer

![How do loyalty program economics and points liability work in 2027?](https://pulserevops.com/img/auto/q-revops-loyalty-program-economics-points-liabil-twa791.jpg)

**Loyalty programs are financial instruments, not just marketing — points are a balance-sheet liability worth over $100 billion globally, and for international airlines, frequent-flyer programs generate as much as 44% of total revenue.** Under **IFRS 15** and **ASC 606**, points are treated as **contract liabilities** until redeemed, so CFOs model **breakage** (points never redeemed) and **redemption timing** with increasing precision. The market is large and growing — loyalty management is heading toward **$28.65 billion** by 2030, with program expenditures reaching **$71 billion** by 2026. **Breakage** is a double-edged metric: unredeemed points become **profit**, but outstanding points are a **liability** and a sign of weak engagement. Brands are shifting to **"earn and burn"** strategies and expanding reward catalogs (digital gift cards, experiences, donations) to **encourage redemption** — which reduces breakage while raising perceived value. Programs like **Delta SkyMiles** and **American AAdvantage** are so valuable that the loyalty program can be worth more than the core business.

For operators, loyalty economics are a clean lesson in **deferred-revenue liabilities, the breakage tradeoff, and retention as a financial asset.**

## 1. Points Are a Liability

![How do loyalty program economics and points liability work in 2027 — 1. Points Are a Liability](https://image.pollinations.ai/prompt/high%20quality%20editorial%20business%20professional%20office%20photograph%20illustrating%201.%20Points%20Are%20a%20Liability%20How%20do%20loyalty%20program%20economics%20and%20points%20liability%20%2C%20realistic%20magazine%20style%2C%20warm%20light%2C%20no%20text%2C%20no%20watermark?width=1200&height=675&nologo=true&model=flux&seed=23885)


### Deferred revenue on the books

![How do loyalty program economics and points liability work in 2027 — Deferred revenue on the books](https://image.pollinations.ai/prompt/high%20quality%20editorial%20business%20professional%20office%20photograph%20illustrating%20Deferred%20revenue%20on%20the%20books%20How%20do%20loyalty%20program%20economics%20and%20points%20liabil%2C%20realistic%20magazine%20style%2C%20warm%20light%2C%20no%20text%2C%20no%20watermark?width=1200&height=675&nologo=true&model=flux&seed=79140)


When a customer earns points, the company has taken value it **owes** later — so under **IFRS 15** and **ASC 606**, points are a **contract liability** until redeemed. More than **$100 billion** in loyalty currency sits outstanding globally. The points are not free marketing; they are a **financial obligation** on the balance sheet.

### Modeling redemption and breakage

CFOs **model** when points will be redeemed and how many never will (**breakage**). Accurate modeling is essential because the liability and the eventual cost depend on **redemption behavior**, which varies by program — especially in **low-frequency, high-value** programs where points sit for years.

```mermaid
flowchart TD
  A[Customer Earns Points] --> B[Company Owes Value Later]
  B --> C[Contract Liability - IFRS 15 / ASC 606]
  C --> D[Over $100B Outstanding Globally]
  C --> E[Model Redemption Timing]
  E --> F[Estimate Breakage Rate]
  F --> G[Liability + Cost Depend on Behavior]
```

## 2. The Breakage Tradeoff

### Unredeemed points become profit

**Breakage** — points that are never redeemed — is a **double-edged** metric. Unredeemed points eventually become **profit** (the liability is released without a cost). So a company **benefits** financially when points go unused — but that same breakage signals **weak engagement**, the opposite of what a loyalty program is supposed to create.

### Earn-and-burn over hoarding

Brands are shifting to **"earn and burn"** — encouraging **faster redemption** — and expanding catalogs with **low-point, high-frequency** rewards (gift cards, experiences, donations). This **reduces breakage** but **raises engagement and perceived value**. The strategy trades the easy profit of breakage for the **deeper loyalty** of an active, redeeming member.

```mermaid
flowchart LR
  A[Breakage - Unredeemed Points] --> B[Becomes Profit]
  A --> C[Signals Weak Engagement]
  B --> D[Easy Short-Term Gain]
  C --> E[Undermines Loyalty Goal]
  E --> F[Shift to Earn-and-Burn]
  F --> G[Reduce Breakage, Raise Engagement]
```

## 3. The Program as the Business

### Airlines and the 44% signal

The most striking fact: international **airlines** realize as much as **44%** of total revenue from frequent-flyer programs. Programs like **Delta SkyMiles** and **American AAdvantage** sell miles to **credit-card** partners and others at scale — so the **loyalty program** can be worth more than the **core operation** it was meant to support.

### Loyalty as a financial asset

This is loyalty becoming a **financial asset** in its own right — a currency the company **issues and sells**. The points economy, properly run, is a high-margin business layered on the core, monetizing the **customer relationship** as a standalone revenue engine.

## 4. The RevOps and Finance Lessons

### Treat deferred value as a real liability

The clearest lesson is that **deferred customer value is a real liability**. Points, credits, prepaid balances, and commitments owed are **obligations** that belong on the books and must be **modeled**. RevOps and finance teams should treat any **deferred-value** program — loyalty, credits, refunds owed — as a liability to forecast precisely, not a marketing line to ignore. Unmodeled obligations create nasty surprises.

### Watch breakage as a two-sided metric

**Breakage** rewards you financially but punishes you in **engagement**. Operators running any deferred-value program should track breakage as **two-sided** — the profit it generates and the disengagement it reveals — and decide deliberately whether to **maximize the profit** (let points lapse) or **maximize engagement** (drive redemption). Optimizing only one side misses the tradeoff.

### Monetize the customer relationship as an asset

The airline **44%** signal shows a loyalty program can become a **standalone revenue engine** worth more than the core. Operators should consider whether the **customer relationship** itself can be monetized as an asset — a currency, a network, a data product — layered on the core business. The relationship, well-structured, can become the more valuable asset.

## 5. What to Watch

The questions for 2027 are how **accounting scrutiny** of loyalty liabilities tightens, whether **earn-and-burn** strategies erode the breakage profit airlines and retailers depend on, and how loyalty programs evolve into broader **financial** products. With over **$100 billion** in outstanding liability and programs generating up to **44%** of airline revenue, loyalty is squarely a finance discipline. The durable lessons stand: treat deferred value as a real liability, watch breakage as a two-sided metric, and monetize the customer relationship as an asset.

## The Mechanics of Points Liability: How CFOs Model and Manage the Balance Sheet

In 2027, the accounting treatment of loyalty points has matured into a sophisticated discipline. Under **ASC 606** and **IFRS 15**, companies must allocate a portion of each transaction’s revenue to the points earned, creating a **contract liability** that sits on the balance sheet until redemption or expiration. The key variable is **breakage** — the percentage of points that will never be redeemed. For a typical retail program, breakage rates range from **10% to 30%**, while airline programs often see **15% to 25%**. CFOs now use machine-learning models that analyze historical redemption patterns, customer demographics, and even macroeconomic indicators (e.g., inflation, travel demand) to estimate breakage with precision. A 1% error in breakage estimation for a program with $1 billion in outstanding points can swing reported profit by **$10 million**, so auditors and regulators scrutinize these assumptions closely. The liability is also **time-sensitive**: points with shorter expiration windows (e.g., 12–24 months) have lower breakage uncertainty, while programs with no expiration (like many hotel chains) require more complex actuarial modeling. Some companies now issue **liability-adjusted earnings** reports, showing profit both with and without breakage assumptions, to give investors clearer visibility.

## The Revenue Engine: How Points Generate Cash Before Redemption

Beyond accounting, loyalty programs are cash-flow powerhouses. When a customer earns points, the company receives **immediate cash** from the partner (e.g., a credit card issuer pays the airline for miles) or from the customer’s purchase. This cash sits on the balance sheet as deferred revenue, but the company can **invest it** — often in short-term bonds, commercial paper, or even operating capital — before the points are redeemed. For large programs, this float can be worth **hundreds of millions** annually. In 2027, leading programs also monetize points through **dynamic pricing** of rewards: airlines and hotels adjust the number of points needed for a seat or room based on demand, effectively managing the liability in real time. For example, a flight might cost 15,000 points on a Tuesday in February but 60,000 points on a Friday in July. This practice, while controversial with consumers, allows programs to **align liability with revenue** — high-demand redemptions consume more points, reducing the outstanding pool faster. Additionally, programs sell points directly to customers (e.g., "buy miles" promotions) and to partners (e.g., hotels buying points for promotions), creating a secondary revenue stream that can account for **5% to 15%** of total program income. The net effect: a well-run loyalty program can generate **operating margins of 20% to 40%**, making it more profitable than the core business in many cases.

## The 2027 Regulatory and Consumer market: New Rules, New Risks

Regulation of loyalty programs has tightened significantly by 2027. The **FASB** and **IASB** now require more granular disclosure of breakage assumptions, redemption rates, and liability aging in annual reports. In the EU, the **Digital Fairness Act** mandates that points cannot expire in less than 24 months unless the customer receives equivalent cash value, forcing programs to either shorten expiration windows or hold larger liabilities. The **U.S. Consumer Financial Protection Bureau** has also issued guidance on "unfair or deceptive acts" related to points devaluation, with several class-action lawsuits settled in 2025–2026. As a result, programs now publish **transparency dashboards** showing the average value of a point (e.g., 1.2 cents for a hotel point, 1.5 cents for an airline mile) and the percentage of points redeemed each quarter. Consumer behavior has shifted too: **"points hoarding"** declined by **15% to 25%** between 2023 and 2027, as customers became more aware of devaluation risks and expiration rules. Programs now use **nudge tactics** — push notifications, email reminders, and limited-time bonus redemption offers — to encourage faster burn rates. The most successful programs achieve **redemption rates of 60% to 75%** within 18 months, balancing breakage profit with customer satisfaction. For CFOs, the lesson is clear: loyalty economics in 2027 require constant calibration between financial optimization and regulatory compliance, with consumer trust as the ultimate liability.

## FAQ

**Are loyalty program points really a liability on the balance sheet?**  
Yes, under accounting standards like IFRS 15 and ASC 606, unredeemed points are recorded as a contract liability. Companies must estimate the value of outstanding points and adjust for expected breakage, meaning the liability shrinks only when points are redeemed or expire.

**How do companies make money if points are a liability?**  
Profit comes from breakage—points that are never redeemed. By carefully modeling how many points will expire unused, firms can recognize that portion as revenue. However, too much breakage can signal weak engagement, so brands aim for a balance between redemption and breakage.

**What is “breakage” and why is it a double-edged metric?**  
Breakage refers to points that are issued but never redeemed. It boosts short-term profit because the associated liability can be written off. But high breakage also indicates customers aren’t engaged, which can hurt long-term retention and brand loyalty.

**Do loyalty programs really generate significant revenue for airlines?**  
Yes, for major international airlines, frequent-flyer programs can account for up to 44% of total revenue. Programs like Delta SkyMiles and American AAdvantage are so valuable that the loyalty arm can be worth more than the airline’s core operations.

**How are companies encouraging customers to redeem points in 2027?**  
Brands are expanding reward catalogs to include digital gift cards, experiences, and charitable donations. They also use “earn and burn” strategies—offering limited-time bonuses or lower redemption thresholds—to accelerate redemption, which reduces the liability and improves customer satisfaction.

**What is the global market size for loyalty management?**  
The loyalty management market is projected to reach around $28.65 billion by 2030, with total program expenditures hitting roughly $71 billion by 2026. These figures reflect the growing investment in technology and analytics to optimize points liability and engagement.

## Bottom Line

Loyalty programs are **financial instruments** — points are a **contract liability** worth over **$100 billion** globally under **IFRS 15/ASC 606**, **breakage** is a two-sided metric (profit versus disengagement), and for **airlines** the program generates up to **44%** of revenue, sometimes worth more than the core business. For operators, the lessons are exact: treat deferred customer value as a real liability to model, watch breakage as two-sided, and monetize the customer relationship as a financial asset.

<!--pillar-weave-->
## Related on PULSE

- [How Do I Get My Coffee Shop Staff to Drive Loyalty App Signups?](/knowledge/q15852)
- [What's the right dog-to-staff ratio for a daycare facility, and how does it affect insurance and liability?](/knowledge/q1135)
- [How does the AI data center boom and its power-constraint economics work in 2027?](/knowledge/q13051)
- [How does the NCAA Tournament expansion to 76 teams and its economics work in 2027?](/knowledge/q13038)
- [How does the secondary ticket market and resale economics work in 2027?](/knowledge/q13031)
- [How does WNBA expansion and its economics work in 2027?](/knowledge/q13004)

## Sources

- [Brandmovers — What CFOs need to know about loyalty program liability in 2026](https://blog.brandmovers.com/what-cfos-need-to-know-about-loyalty-program-liability-in-2026)
- [The Fintercept — The post-points economy: why loyalty is becoming a financial asset](https://thefintercept.substack.com/p/the-post-points-economy-why-loyalty)
- [Brandmovers — Why you should care about your loyalty program's point breakage rate](https://blog.brandmovers.com/what-is-point-breakage-and-why-should-you-care)
- [Voucherify — What is loyalty breakage? Definition, formula, and benchmarks](https://www.voucherify.io/glossary/loyalty-breakage)
- [KYROS — Loyalty program liability budgeting: how to build a financial forecast](https://www.kyros.com/blog/loyalty-program-liability-budgeting-how-to-build-a-financial-forecast/)
- [ScienceDirect — Breakage analysis for profitability management in loyalty programs](https://www.sciencedirect.com/science/article/abs/pii/S0167811624000909)

---

*Loyalty program review — loyalty program economics reviews, rating, points liability review 2027, and a review of breakage, deferred-revenue accounting, and retention as a financial asset for operators.*

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