Payments and commerce company Verifone, financial services processor FIS and digital payments startup Modo have announced a new system that will enable customers to pay with loyalty points linked to their credit or debit cards at the point-of-sale for any merchandise available at that location.

The concept of paying for items with loyalty points is nothing new, but typically it was confined to portal e-commerce stores or preselected items. The best example were the magazine subscriptions for which you can trade your airline loyalty points.

And while other specific pay-with-points initiatives exist — namely American Express’ program that enables real-time redemption of Membership Rewards points at only select merchants like McDonald’s and Yellow Cabs in New York — this program is of a large scale and is not tied to any select merchants.

Basically, any merchant using specific Verifone  credit card terminals will be able to enable customers to pay for any merchandise they want using loyalty points they’ve accrued on their credit card. The program’s scale is large; there are 3,100 banks in the FIS network reaching 8.5 million customers.

The way it will work is that merchants who use Verifone Commerce Platform credit card terminals can download an application called Verifone Points Redemption into those terminals.

This software application connects to the FIS  Premium Payback Network of loyalty programs and allows consumers — whose banks are part of this network — to receive a reminder of how many loyalty points they have with that credit card. They will be prompted if they want to use those loyalty points to make their purchase… whatever the items are.

The most interesting part of the equation to me is the Dallas startup that acts as the conduit between all the systems. Modo, who we’ve previously reported on, acts as sort of the “operator switchboard” that enables all the different players in this complex scenario to communicate and ensure that the values and points are made available and translated, in real time.

It’s Modo’s cleverly named COIN operated Digital Payments Hub that makes the translation possible and sees the startup continue their transformation from an individual mobile payments provider to a deeper systems integrator.

According to Modo’s Bruce Parker, nearly $16 billion worth of loyalty points are left unused or forgotten each year. By reminding consumers about their loyalty points at check-out, this program can combat that loss, and also benefit merchants who enable the capability on their payment devices.