Which startups won’t make it and which will go out of the crisis as winners. Events industry, travel, leisure, real estate, hardware, are the hardest hit sectors. Yet does it apply to the startups in these industries? Do tech startups stand the chance of losing the game for not having the financial resources to sustain, or will make it because they are flexible and adaptable? We ask founders from the sectors that are in the very spotlight right now.
Many small merchants – stores, restaurants, and coffee houses are facing hard times with the global lockdown related to the coronavirus. A recent title at Economist stated “A wave of bankruptcies is coming in Europe” and what was meant was the lacking liquidity of the backbone of the European economy – the SMEs. For startups that are offering products to SMEs, especially in the hardest-hit sectors – physical stores, coffee shops, small book stores, galleries, etc., this also means rethinking the strategy.
One such startup is Reloyalty, a cashback and customer loyalty system, operating in the UK market. Reloyalty’s software connects to the bank cards customers shop with and thus any physical business can observe how much their customers spend, what are their customers segments, which customers come every month, what is the lifetime value of a customer among many others, and run “retargeting” campaigns to drive more engagement. Last summer, the company raised a €530K seed round to expand its vision of loyalty in the UK market. Half a year later, the situation has changed. We heard that the startup has come up with a new product – a crowdfunding platform, aiming to help customers and merchants stay in touch, in response to the new circumstances, and went to ask co-founder Ivo Vasilev about Reloyalty’s current state and plans.
Trending Topics: Can you share how the past two years were for Reloyalty – what are the main milestones you have achieved?
Ivo Vasilev: Reloyalty, as it is today, started roughly two years ago, when multiple innovations in financial technology became available in Europe, among them Open Banking and PSD2, and the rise of various financial infrastructure providers. It is a paradigm shift that made a whole new range of financial products possible. We particularly envisioned new possibilities for physical retailers – shops, restaurants, local businesses, who can deliver better experiences to their loyal customers.
Historically, physical retail is one of the sectors most negatively impacted by technological advancements. While less than 10% of global commerce happens online, the world is fastly moving onto the internet. Giants like Amazon are continuously eating market share from physical businesses and innovators like Stripe and Shopify make it incredibly easy for anyone to start an online business. Restaurants have no option but to enlist on delivery platforms, which also steal restaurant market share squeezing their profit margins. All those online businesses have thousands of analytics and retargeting tools to run their operations hyper efficiently, grow fast, and gain market share.
With COVID this process will be accelerated fast and offline businesses need the tools to cope with that more than ever. At Reloyalty, we developed the technology for physical businesses to run as equally effectively as online businesses do.
Most of all, we built a magical experience for their customer – you just connect your bank to our mobile app and automatically collect rewards you deserve across all your purchases without even thinking about it. This opens a new channel between retailers and their customers to strengthen the bond and increase engagement and revenue.
The result surpassed our expectations. Over 80% of users connected a card to get rewards and the engagement is 3x the industry average. With our campaigns, we can increase the annual merchant revenue by more than 5% and prove it by actual spending data.
How is Reloyalty experiencing the current situation and the expected crisis? What was your first response as a company and yours as a founder in particular?
Recently, The Economist came up with a staggering statistic that over 30% of small businesses could go out of business because of the crisis. Many of these businesses are the ones we love the most and important part for our lifestyle – the places serving our favourite food, cocktail, coffee, the places we buy our vintage clothes from, the galleries and the spaces with live performances, the yoga studios, the hair salons, and so many others. Consumer spending in the UK and Europe in those categories is over 20% so the distress in the economy will be felt for many years to come.
I had conversations about CV19 in January and later – multiple trips in the UK and Europe. It felt like a storm was around the corner. When things unfolded we cut costs, renegotiated contracts, and streamlined operations. We quickly went remote, which was a natural transition as we had been operating in similar fashion already.
Most importantly, we went back to the drawing board and started thinking about the implications and what it means for us and our market at present, and in the next 2 – 5 years.
Your focus is on spending in stores, restaurants, and local businesses. What are the trends you are currently observing and how do you think the crisis will affect the market in the longer term and your business in particular?
Yes, our focus is largely on physical retail, which is one of the most affected sectors.
Many of the businesses we talk to are questioning whether the new conditions and market demand will be sufficient to stay in business. Imagine if you are a small restaurant and you have to rearrange your place for social distancing. You effectively cut your capacity by 50%. In combination with the recession and new behaviours, the economics behind your business might not work anymore.
For us the question is how can we be part of the solution. What will be the behaviours in the “new normal”? For example one of the most important components for physical businesses is location. If the revenue of your business was mostly driven by people who work close by, now with remote work becoming the standard, there will be more neighbourhood shopping so it is important to target that audience. Due to social distancing, people will more likely prefer small than large businesses where there are fewer people so the discovery of new locations will become important. Dining out or social gatherings will probably decrease in frequency so the question is how you incentivise them and what new experiences you can offer. Businesses should be able to analyze those behaviours and forecast them. Finally, people will likely have a set of favorite businesses they prefer, representing the highest convenience and will likely stick to them.
Physical businesses will need the tools to give a complete snapshot of their customer community at any given moment, be able to analyze the shopping patterns and loyalty behaviours and target the right customers at the right time. Reloyalty does all those jobs for merchants automatically.
We want to be the go-to company for any small business that wants to build stronger and more profitable relationships with their customers.
You’ve built a new crowdfunding platform to allow customers to support their favorite local businesses. Can you explain the concept?
We immediately thought who is the most willing to support your business in times of crisis? It really comes down to your most loyal customers. So we thought – why not allow customers to pay for products in their favourite business upfront and get a little extra value in the future when they come back to make purchases.
We released a product similar to crowdfunding to help retailers collect funds from their customers upfront in the form of funding campaigns. Customers can support them with as little as £10 to £200+ and get it back in a form of cashback with a little extra on top in the future. We automate the whole process and make it seamless for both the customer and the business, everything is done automatically whenever the customer pays by card. We help the business design the campaigns based on the revenue levels they need to achieve and the number of customers they can reach out to.
Best of all, we designed the product to guarantee the retailers’ future transactions and loyalty. For example if a customer pledges £50 they can get £60 back cashback, yet not at once but gradually in consecutive transactions while they make purchases with their card. That way the business locks in future revenue of at least £300 and guarantees at least 10 repeat visits. At the same time the customer is rewarded with a little extra. It is a win-win.
This can open up a completely new model for retailers. In the future, businesses can crowdfund the opening of new locations, improvements, refurbishments by getting funds from their customers upfront and paying back from the future revenues customers generate as the loyal customers are the ones most likely to enjoy the new improvements. The opportunities are endless.
How does this align with your vision and previous product? Will you continue developing the loyalty and cashback system?
The new product steps on top of our current Reloyalty infrastructure and wouldn’t have been possible without it. We see it as an extension and a very complementary part of it.
All money flows are automated thanks to the infrastructure we developed and later redeemed with their connected cards in Reloyalty. Through the Reloyalty dashboard the business is able to observe the customers who supported their business, how often they come, and whether they continue making purchases once they redeem their perk. The business can use the existing loyalty campaigns, target user segments with Reloyalty suggestions on how to increase loyalty and revenue.
Any service we build should help retailers with the goal to measure the impact on loyalty and forecastability of future revenue.
How will your business change as a result of the pandemic and the crisis?
For as long as there is value to add we will keep doing what we do no matter what the market conditions are. I think the most important question anybody should ask themselves is where is the added value of their product. How does it help the market you serve and where does it fit on the value chain? This pandemic shows as many cracks in the economy and as in business models. There will be many new behaviours, new needs, and new shifts in the way we operate.
10 years ago there was a global financial crisis, today there is a pandemic, in 10 years there will be something new – whether that is a new technology, which changes the landscape or widespread demographic event. Times change, so do companies. We will adapt to the new standard, in whatever form or shape it comes.
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