A voucher is a certificate that entitles you to a product or service. For example, if you exchange a 100 euro bill for a certificate saying "voucher worth 100 euros at company" then you can pay for an experience at that company with the certificate.
The pandemic has placed strain on local companies and consumers are reluctant to take the risk of booking companies. The essence of CoVoucher20 is the mutualization of that risk: even if one company needs to close, another company close by can fulfil the voucher. To help with company finances during the pandemic, we pay the part of marginal profit directly to the company selling the voucher, another part to the companies' bankruptcy insurance scheme, and hold the remainder in an escrow account. (If the company does not have bankruptcy insurance, we hold the whole amount in an escrow account and the company can use the financial statements we issue to secure a credit line from their bank.) When the lockdown ends, consumers can convert the covoucher into a reservation and we pay that remainder. If the company selling the voucher needs to close, we commit to finding a company with a rating equal or higher that can provide accommodation near that area, and we pay the remainder to that company.
We believe that this crisis is to the tourism industry what the Great Depression was to the banking industry. In the 1930s, consumers felt afraid that their banks would fails and ran to withdraw their money; banks had to liquidate their long-term assets such as real estate to return deposits; when every bank did the same, prices collapsed and banks had too little to satisfy all deposits, and so they had to file for bankruptcy. Such events are called "bank runs" since then.
Economists call this phenomennon a "self-fulfilling prophecy": if consumers believe that the bank will fail, they act in a way that the prophecy becomes true.
Central banks have since learned and practiced the solution for the banking sector: deposit insurance guaranteed by the state (and ultimately by future tax revenue). The US government established the Federal Deposit Insurance Corporation (FDIC) that guarantees all deposits up to a certain amount: with that guarantee, consumers do not "run on the bank", and the bank survives. The state guarantee works as virtuous self-fulfilling prophecy: the state announces that no retail bank will fail, and then no bank does.
Central banks in western countries have extremely competent economists who have learned well the lessons from economic history and we feel complete confidence in the survival of banks and the financial sector. (Full disclosure: the project lead applied for a job, had interviews, and has friends at the European Central Bank, the Federal Reserve Board, and the Bank of England.)
We see the same parallels with the tourism industry in 2020: companies earn 80-90% of their annual revenue during the June-September season; consumers feel reluctant to make bookings, since they don't know if they will be able to travel and which companies will survive; since companies have fixed costs that need paying, without reservations ahead of the summer season, they may not survive. It's again a self-fulfilling prophecy.
We believe that CoVoucher20 and its 100% money-back guarantee can restore confidence in the local tourism industry in the same way that deposit insurance restored confidence in the banking industry. We are applying the lessons from economic history to this sector without needing another painful lesson. We also have a mission in the longer term to set up national Tourism Insurance Corporations that guarantee the survival of local tourism in each country.
In the unfortunate event that the company selling you the voucher does not survive, we commit to finding a company with similar or higher rating in the area. This is the mutualization of risk in our Terms and Conditions to ensure that you can still plan your holiday and the region you visit can provide you with accommodation. In the event that no company in the region survives, we offer the buyer of the voucher a 100% refund.
We encourage you to do so if you can, as that is the best way to support companies and local tourism. CoVoucher20 is really designed to mutualize the uncertainty around bankruptcy of local companies by providing consumers with 100% money-back guarantee and companies with valuable information about future bookings.
We partner with Stripe, an industry leader in financial transactions valued at several billion dollars, to hold your financial details. We send Stripe the details of the transaction, such as amount and the identification of the local company receiving the funds, and Stripe requests payment information directly from the consumer and processes the payment on our behalf and splits the payment into most of the amount directly to the local company and a small fee for us. We never hold your debit card or bank account information on our servers. Aside from payments, we use industry-standard procedures for information security: HTTPS for end-to-end encryption of communication on the internet, secure and up-to-date servers, user passwords stored with one-way encryption, etc.
We are a social enterprise and not-for-covid-profit. We intermediate between local companies and their patrons and charge a small fee to cover our running costs, so businesses receive as much as possible to survive through the crisis.
We charge businesses 6% in to cover our costs (equipment, financial transactions, staff).
Local companies that benefit the most from CoVoucher20 are those with substantial fixed costs and with enough profit in the future.
Consider the following example where a company started in December 2019 and usually has 100k in income per 3-months, with 30k to pay rent and utilities, and 40k to pay employees. Suppose that the company can reduce variable costs to 20k (e.g., staff decide to take a pay cut instead of getting fired). With no help at all, the business bank account will be in the red during the crisis and the bank may close the business.
With CoVoucher20, the business can bring forward 30k of income after the crisis to cover for fixed costs today. The bank account will be in the black and the business can survive.
If the business takes the risk of a loan from its bank, the end result would be the same: 10k in the in October 2020. Yet, most local companies do not have that luxury or cannot take that risk. With CoVoucher20, you can save a local company.
In economics parlance, CoVoucher20 allows businesses to borrow against their future income and to trade off their future marginal profit to cover their present fixed costs. (We ignored interest rates, fees, and modest amounts of inflation and deflation to keep this example simple; the main result with such features is similar.)
We currently support the United Kingdom and many countries in the euro area: Austria, Belgium, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Netherlands, Portugal, Slovakia, Slovenia, and Spain.
We started with the idea of supporting local businesses by letting consumers purchase vouchers that converted to a donation in case of bankruptcy. As countries are exiting lockdown, that original idea is now less relevant and we have adapted to the next challenge, which is the crucial summer months for the local tourism industry. Furthermore, many similar initiatives have used a similar idea: although the following list is not an endorsement, we decided to list them here so local businesses get all the help they can.
Paraguay, Peru, Uruguay: Cuando todo termine.
We made this decision for languages that have a gender, i.e. most European languages, as our way to honour women during the crisis. They are hit the hardest by the pandemic: they work from home while caring for children, they work in the health sector, and they are more at risk for domestic violence.