Help Save Main Street with Cogster

August 23, 2010
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When I lived in Idaho, controversy followed big businesses that wanted to build new stores on the outskirts of town. Its not that people didn’t want the benefits of the new store, they just weren’t sure they wanted those benefits at the cost of local businesses on Main St.  Cogster is a Groupon meats Kiva mashup that encourages communities to help local businesses.

Cogster helps businesses raise cash by pre-selling their services on the Cogster marketplace.  Customers buy gift certificates (Cogster calls them Dividend Reward Certificates) and use the certificates to purchase services or products offered by the business.  Normally, Cogster businesses get people to buy the Dividend Rewards Certificates by doubling their value of the certificate relative to the purchase price.

So if a business is running  a “Double Money” Cogster campaign, and you buy a certificate for $100, you have 30 days to spend that $100 on the services or products offered by the business.  You then have 30 days to spend the next $50, and 30 days after that to spend the final $50.  The dividend rewards must be treated as cash by the business. They cannot put any restriction on how or when the funds may be applied.

Businesses benefit by receiving a quick cash infusion and building a customer base.  Customers benefit by receiving double the goods and services they would normally receive for the amount of money they spent on the Dividend Reward Certificate.  Cogster makes money by keeping 10% of money raised.

Cogster is truly a marketplace.It brings together buyers and sellers, and it facilitates both sides of the transaction.  Customers purchase their Dividend Rewards Certificate through Cogster.  When presented with a Dividend Reward, Cogster Businesses record the redemption through Cogster.

Cogster isn’t a lender.  The owner makes that clear in an interview with American Banker: “This is a prepayment of goods and services … Our goal was always how do we inject capital into mom and pop, legally, without being a bank and without going through the legality of it being a security. … We never had the goal of placing a debt burden on the company. We wanted the capital to be associated with customer flow.”

Still, this idea is something that Financial Institutions should monitor.  It isn’t too far fetched to think that a financial institution could partner with Cogster to facilitate this type of marketplace.  Financial Institutions  sell gift cards via Online Banking.   FI’s lend money to businesses.  They offer online financial management tools to help their customers find ways to save money.  Cogster’s business model incorporates all of these elements. Facilitating a marketplace that helps customers support merchants who do business locally could be a nice addition to a community bank or credit union’s Internet Banking site.

Cogster takes some money from a lot of people, transfers that money to a businesses that offers goods and services that people want to purchase, and collects a fee for facilitating the relationship.  Sounds a lot like banking to me.

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