Peer to Merchant lending

Merchants usually require financial services, such as cash advance loans and customer payment facilities, which are costly services. Co-here aims to reduce both of these costs to participating merchants, by connecting merchants with their customers over a longer period than instant payments, by aligning merchant needs for a cash advance with customer loyalty, through a prepaid subscription model with generous discount rewards.

Merchant patron reciprocity

Customers have ongoing merchant patron relationships with many businesses, frequent and recurring, some of more personal significance. Some merchants are located in a customer’s locality, some in a different region. For example some merchants may designate their locality at a national or global level. Never the less, a long term loyalty arrangement can benefit merchants and customers.

Prepaid subscriptions

An alternative to regular institutional forms of lending to a merchant for principal plus interest could be in the form of a customer prepaid subscription with loyalty discounts.

In this prepaid subscription schedule there is a gradual increase in the discount rate each week, which amounts to savings for the customer, with an understood agreed discount rate over the full term. The advantage of this prepaid subscription model is the facility to be paused, or terminated with a refund, for the remaining prepaid allowance.

prepaid subscription with puase and refund option

For an example a local gym offers a prepaid subscription for 52 weeks with an overall price discount of 19.5%. Let’s say the offer is $858 for 52 weeks for access to classes and the gym, which equates to $33 a fortnight. The post paid amount would be $1,066 for 52 weeks. The prepaid discount saves the customer $208 over 52 weeks, 19.5%.

Progressive discount schedule

During the subscription term, weekly installments are subtracted from the prepaid subscription allowance, the refundable prepayment. The refundable amount progressively reduces with each weekly installment according to a discount schedule.

The discounts schedule starts at 0% in week 1. Then increases by an increment each week – in the example the increment is an additional 0.77% per week (actually it’s 0.7652% but I’m rounding up here for simplicity). In the 3rd week the discount is 2x the increment (2 x 0.77 = 1.54%). In the middle of the subscription the discount is half way between 0 and the maximum (week 26 x 0.77 = 20%). Until the maximum discount is reached in the final week (week 52 x 0.77 = 40%). The over all discount over the full subscription is half of the maximum (20% over all).

A “progressive discount schedule” provides an incentive for the customer to continue with the subscription and for the merchant to capture a larger proportion of the prepaid subscription earlier than a flat rate schedule. While it also provides for a way for the customer to pause or cancel the subscription and receive a refund for the remaining prepaid balance.

Setting aside the various amounts

To ensure the prepaid subscription is used for its intended purposes the funds could be set aside in to various pools, shared by all subscriptions with that merchant, and budgeted for specific purposes.

The expected amount required for transaction costs over the full subscription term is 1%, this would be pooled from all subscriptions and transaction costs deducted as an expense to the merchant. If transactions are indeed lower than 1% this amount can be reduced.

A top-up refund pool would receive 9% of the funds, shared by all the subscriptions with the merchant. While 90% of all subscription prepayments would be allocated to an allowance pool for paying down the subscriptions.

Merchants receive payment in 4 installments:

  • 30% in the beginning of the 1st third of the subscription term
  • 30% in the beginning of the 2nd third of the subscription term
  • 30% in the beginning of the 3rd term of the subscription term
  • 9% in the last week of the full term from top-up refund pool.
  • (1% is paid by the merchant for subscription transaction fees)

Pauses and Refunds

Requests for subscription pause or refund is available from beginning of the 2nd third of the full term of the subscription.

A “pause request” simply delays the counting of the start of the following week in the subscription term, until the customer makes a “resume subscription” request.

In case of a “refund request” from a subscriber, the refund would be accounted from the following week and sourced 1st from the allowance pool and secondly from the top-up refund pool.

Clear standards to compare offers

Prepaid subscriptions could have standards shared by merchants in similar sectors, automatically derived from the average of all subscription offers in a specific locality or region, which help merchants and customers understand the offer and its benefits and compare offers.

There may be an average or standard offer in a particular sector, such as cafes and restaurants, and another standard offer common for retail clothing merchants, or for newspaper / magazines or for travel agencies, or for performance, theatre and cinema houses etc.

As an example, a merchant may have a subscription offer which has a lower or higher discount than the average offer in that sector and locality. However, the merchant’s customers may be also well aware of other factors in considering the subscription offer, such as the retail price already relatively lower than other merchants or a higher quality of location, decor, customer service and the products provided.

A new way to look at the familiar

Prepaid credits, subscription and loyalty discounts are not uncommon, yet they could be seen as a way for a merchant to gain funds in advance of delivering services and for customers to receive far more generous discounts for the patronage they would have otherwise had as casual customers.

Co-here will facilitate these types of merchant / patron prepaid subscription offers by setting out clear standards and procedures shared among participating merchants, which can be easily understood and compared. Co-here will provide the software, ledger and transparent funds tracking, with specific allocations for automated payments, pause option and the refund facility.

Merchant promotional opportunity

Another ripple (network) effect may be through peer to peer recommendations. Peers may spread news or a recommendation about a worth while prepaid subscription offer they enjoy or simply recommending their most recent favourite merchant which happily accepts local tokens. Merchants may offer a bonus loyalty reward to customers for successful recommendations.


Loyalty community investment – ALT shares

Bundled transferable non activate prepaid subscriptions
Limited availability discounted pre-sales

Stage 3 of the Co-here roadmap aims to facilitate multi stakeholder enterprise models, community investment in co-operatives and social enterprises. Common tools with in a platform co-op will support enterprises in a locality and in a sector and facilitate networking among enterprises and members.

Customers purchasing a bundle of transferable non activated prepaid subscriptions could serve as an alternative to shares in the business. An investment in the provision of merchant services, received at a discount rather than dividends or cash back.

The benefit for the merchant is transparent accurate account of future income (receivables) could be used in a financial loan or settlement agreement.

As explained above, an activated prepaid subscription over 1 year gives a significant loyalty reward (20% as an example). A bulk purchase of a number of prepaid subscriptions, a bundle, could be sold by the merchant at a discount compared to a single prepaid subscription. For example a 5x subscription could be bundled for a 5% discount, a 10x bundle for 10% discount and a 15x bundle for 15% discount.

A condition of a bundle each year at least 1 subscription would be automatically activated, with option to nominate, while the remainder are not immediately activated.

The non activated subscriptions from a bundle could be kept for following years. Subscriptions from a bundle could be shared among friends, members of a club, association or organisation. They could also be resold for profit.

The owner of an activated subscription is party to a service contract directly with a merchant. An escrow of funds from non activated subscriptions would be similar to activated subscriptions – no payment to the merchant until subscription is activated.

Subscription pauses and refunds are only available for activated subscriptions, at the beginning of the 2nd third of the full term of the subscription. The remaining paused or refundable subscription amount is calculated according a progressive discount and draw down schedule, as explained above.

Limited availability – due to merchant capacity to deliver

Sale of non activated prepaid subscriptions, pre-sales, would be limited by the capacity of the merchant to deliver services to activated subscriptions. As a merchant capacity approaches its limits, a reduced number of pre-sales will be available. To measure and monitor the capacity, a subscription activation queue will indicate remaining availability. As active subscriptions complete full term merchant capacity will become available. A merchant could also increase their capacity to deliver services.

A transparent account of subscription refunds and the impact on escrow funds remaining for payment to a merchant for active subscription services will be monitored and readily available for customer review. Maintenance of sufficient escrow funds will automatically limit pre-sales.

Pre-sale escrow funds are kept separate from activated subscription escrow funds – to prevent a ponzi scheme. While a merchant won’t be able to access pre-sales funds to increase their capacity to deliver services, they may be able to use an account of pre-sales and active subscriptions as forward looking deliverables to assist in gaining access to financial loans.


“Entangled” discount roaming tokens

ALT shares are required to remain whole, as they eventually become active subscriptions. If an ALT share were allowed to be fractionalised and transferable in parts, it’s parts may never come back together again. Since the discount and redeemable value depends on spending at the merchant, broken subscriptions would lose the basis of their value. They could also never be refunded or paused, as they are not able to be activated as a subscription.

Biphoton symbolic representation

An additional alternative to ALT shares, are “Entangled” discount roaming tokens which can be fractionalised and transferable in parts. They could be sold by the merchant to a customer with a subscription as duplicate parts to the remaining value in their active subscription. Easily understandable standards for fractionalising duplicate remaining value of an active subscription would need to be researched.

An example standard for “entangled” tokens: an entangled token for any week remaining of an active subscription. Each of the entangled tokens would have it’s own validity period and pre-sale price corresponding to the subscription discount schedule. For example for a 52 week subscription with an total discount of 20% less than it’s retail value, an entangled token representing the 26th week would have a sale price 10% less than it’s retail value. Each token would labelled to be valid during only one week and have an equal spending value of one week of the subscription.

Entangled tokens would not be able to be paused or refunded. If the token holder fails to spend the token during the period of validity, they forfeit it’s value.

Entangled tokens would be transferable from the subscriber to anyone. The holder of an entangled token could ask a buyer for a specific price, which could take in to consideration the original owner’s purchase price, the value at redemption and the date of expiry. I expect a standard formula for valuation would emerge and a means of automating a transferable offer price.

Entangled tokens could roam far and wide. They would be like homing pigeons destined to return to the merchant which sold them. Like postcards of interesting places with collectable stamps. The limited issuance of these entangled tokens and their due date make them precious and timely, for those who value the services of the merchant – loyal customers. Customers sharing these entangled tokens with friends could be a means of merchant recommendation. Another way for merchants and customers to be in community and build their resilience.