I interviewed Guillaume Lebleu cofounder of Credibles about his new innovative credit project, following Bernal Bucks. Several years back a group of us currency geeks got together at the Hub SOMA and NoiseBridge for brainstorming sessions to ponder how to link local currencies to the all important food system for better currency flow and convert it into credit for cash-strapped farmers. Credibles cofounder Arno Hesse, also of Slow Money, was part of those meetings and helped dream up Credibles' brilliant model – one part loyalty program, one part Slow Money investment, one part crowdfunding campaign, and one part credit currency. Several years ago just a pipe dream, Credibles now helps fund local food businesses by paying for food ahead of time, in exchange for edible credits.
Here’s how Credibles works: food enterprises issue store credits for money received in advance. Customers and fans prepay the business on the Credibles website. In exchange, they receive a balance of Credibles — or edible credits — that they “eat up” over time. One Credible equals $1. To make Credibles appealing, participating businesses offer a bonus for paying up front. For example, a yogurt producer gives a customer 10 percent extra product when he pays $200 or more up front. That means he receives 220 Credibles.
Credibles looks like a unique combination of a coupon or discount card, gift card, prepayment program, loyalty or rewards card, crowdfunding site, local currency, and community loan. Has anyone ever done this before?
The model of crowdfunding through prepayment has been done successfully before. For instance, in the late 80's Taft Farms in the Berkshires raised money by selling $10 face value notes at $9. This story was my original inspiration behind all my alternative finance projects, including Credibles. There are more recent examples like Awaken Cafe. Also in late 2011, Credibles co-founder Arno arranged payment in eggs of the interest on a loan he made to a farm. All these success stories were the spark for Credibles.
In most of these cases, the process of issuing credits involved the use of paper certificates or gift cards, which isn't convenient for the business or the individual. Credibles is making this proven model more convenient by making the credits electronic and mobile. Individuals buy the credits directly from the Credibles website or app where they can also track their balances. Businesses look up their customers' balances from our business app and can easily update them with each purchase. Customers are identified by their full name and picture and can protect their own accounts with a unique PIN. Some businesses are also using our prepayment model to reward their loyal customers paying upfront, like Hillside Supper Club which is promoting Credibles as a Club membership.
Once you have credits with a business, you can easily give them to friends, family or employees. Some companies have bought credits from local businesses to give away to their employees. Sergi Herrerro at L'Atelier BNP Paribas is doing just that. Crowdfunding a business, getting credits, then giving these credits to friends, family or employees. That's also an interesting way that corporate America can participate in crowdfunding and support local businesses.
What is really novel is to turn these business specific credits into credits that can be used at several businesses, effectively becoming a food currency. This is a capability Credibles will start to introduce in Q4 of this year, but that we have been using in a smaller experiment in Bernal Heights called Bernal Bucks.
What's the benefit to businesses and customers for using Credibles rather than conventional crowdfunding?
Conventional crowdfunding works well with early-stage projects focused on a specific product that can be experienced and ordered online and shipped nationwide. That's perfect for a technology product or fashion, but not so great for food. Food has to be experienced in person, is not necessarily a specific product (think of a restaurant or a farm with produce changing with season) and shipping is difficult (think about meat or fresh produce).
Credibles is addressing these challenges. We work with businesses who want to raise money from customers already familiar with their products, who already have distribution channels like grocery stores or farmers markets where their customers are used to picking up their food, and credits can be used for any product sold by the business. This works well for businesses with a range of products or varying menu depending on season or availability.
For the consumer, we found that selecting specific rewards is a point of resistance when a business has several products. People want more of the food they love, not a T-shirt or signed plate. But conventional crowdfunding doesn't let them pick what they want. Buying credits redeemable for any product/service at a later point turns out to be the most straightforward for the customers. And the more flexibility in picking your rewards, the more people are willing to commit larger amounts, more in the $500 range than in the $25 range.
In a way, loyal customers are loaning local businesses money in exchange for a discount rather than interest paid out over time. It sounds like a great alternative to a conventional loan for businesses, but is there any insurance against default to protect the consumer? Does a third party screen the businesses first or are customers doing the screening?
The Credibles model provides cash flow up front for a business’ operating needs. Most food businesses require a cash infusion before they have product to sell. The chicken farmer has to pay for the chicklets and their feed many months in advance before they start producing any revenues in the form of meat or eggs. Sort of like a CSA, it helps farmers invest in and plan their year of production.
It's also great for the customer. No financial institution offers the return on investment we see on Credibles: 15%-20%. But you are correct, there is a risk. Credibles mitigates some of the risk by working exclusively with established businesses looking to expand. We don't work with early stage food start-ups that don't have food to offer yet. In addition, Credibles with start testing in Q4 a feature that will allow groups of people to pool their credits. These pools will allow participants to share some of the risk of default according to the rules of their choosing.
What payment system does Credibles use?
When you pay with Credibles, the experience is quite amazing because it does not require the customer to use any card, code or mobile phone. They just go to the business, tell their name (not even necessary if the business knows them). For instance, when I got buy a sandwich at La Fromagerie on 3rd street, they know me, and they just take the amount of my Credibles account. I just get a confirmation by email. If they make a mistake like overcharge me, which has never happened, they can easily correct things.
This is a really good example of how a payment system can be much more efficient if it leverages the existing trust relationship that exist at the local level. All of this happens through the Credibles' online payment system.
Currently, we use PayPal to move money from customers to businesses. We charge 5% of the funds raised, which includes the PayPal fees, so there are no other fees. Anyone with a PayPal account or a credit card can fund a business and funds raised go directly to the business. We are planning to add funding by bank transfer as well in the near term. Once the credits are issued, all transactions are between the customer and the business and are free of any fees.
Are there any other upcoming new developments for Credibles?
Pools will provide flexible redemption options. If you've contributed credits from your favorite farm and your friends contributed credits from restaurants, you will be able to access these restaurant credits up to your own contribution, and redeem them at the restaurant. So you can fund a local business and you can redeem some of the credits you got at another business.
Some local currencies can be a drain on businesses because they end up with currency they can't spend. In your system, businesses get money as prepayment and then owe products or services to customers that hold credits. How is Credibles different from or similar to other currency systems?
The upcoming credit sharing capability of Credibles' pools is very different from typical local currency systems. Credibles does not issue its own promises or credits. Only businesses do, either as receipt for prepayment or sometimes as a gift or reward. Then individuals decide on their own to pool these to get more flexibility as to where they can redeem their credits. At the end of the day, a business may redeem a credit from someone that they didn't issue to, but in aggregate, a business never has to redeem more than what they have issued. So by design, they never end up with promises/credits they can't spend, since they never accept more than what they have issued.
Can you explain more about how the pools work?
Pools allow people to use the credits they bought from one business at other businesses. The way it works is super simple: you create a pool with a group of people, small or large, say a group of friends, neighbor, etc. and you contribute your own credits to the pool, in return you get a balance with the pool. Now you can use credits from other businesses that other pool members have contributed to the pool up to your own contribution. Given a large enough number of participants, you have effectively a currency. We will start beta testing this soon and release it publicly later this year or early next. There are many super existing use cases for this - a group of farms could create a pool to allow people to try different products at different times. A group of businesses at a farmers market could use this mechanism to let people try different products at the market. A group of friends could pool credits together to allow each other to discover their friends' favorite business, etc.
Can you tell us about some success stories?
Until very recently, Hillside Supper Club in San Francisco has been a “pop-up” business, serving meals on the two closed days of another restaurant. They were hoping to take over the place full time, requiring a significant investment. Traditional lenders told them that loans might be available if we generated a good portion of funding from “friends and family.” Turning to their customer community, they tried a crowdfunding campaign on Kickstarter, offering T-shirts and name plates to be placed in the new restaurant as rewards. The campaign went so-so. Once they learned about Credibles, they realized the most enticing rewards are their meals. Offering future meals in exchange for funds took their campaign over the top. Within weeks, more than 40 customers prepaid balances of up to $400. Impressed with their community traction, other lenders came through with loans.
Flying Fish is a small seafood store in Portland OR, committed to supporting local, sustainable seafood and grass-fed meats. In 2011, owner Lyf Gildersleeve and his family first opened Flying Fish in Portland out of a truck. Since then, they moved to a little “Fish Shack” on Hawthorne. Fresh seafood at Flying Fish is never frozen. That’s why refrigerator space is important.To offer a broader variety of products, the store needed a second refrigerator. With Credibles, Lyf raised over $6000 from his customers within a few weeks for a new refrigerator and a much needed vacuum sealer for his smoked fish and bacon products.
One exciting new campaign that launched this week is to finally get People's Community Market a long awaited real storefront for their grocery store in West Oakland, which will help provide healthy local produce in the middle of a food desert. Here's more about their fundraising campaign and link on Credibles.
Why did you start with food businesses and will you be opening it up to other industries in the future?
We started with food because food is something that touches everyone's life. We have been inspired by the Slow Money principles. Food businesses are traditionally underserved by financial institutions because of the inherent seasonality of the business. Food is a starting point and we hope to expand in adjacent spaces at some point in the future, such as health, but we not venturing out of food right now. We want Credibles to mean something very clear about the food business participating - we want to create a community of people passionate about changing how food is produced and delivered.