COLU - Blockchain-Based Local Currency in Tel Aviv

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URL = https://www.colu.com/


Description

Norman Shaw:

"Colu is an Israeli company whose head office is in Tel Aviv. They have a digital wallet app, which allows consumers to find local businesses and pay by simply clicking on the merchant’s name and then transferring the amount to be paid electronically. No physical cash is exchanged. The merchant receives the funds via Colu and pays a small transaction fee that is less than the credit card fee. Merchants who subscribe to the service are able to promote their business via the app and can be easily located by consumers who are nearby. The local currency is securely implemented on the blockchain platform and can be used in any country. Currently, Colu is in Haifa and Tel Aviv in Israel plus Liverpool and East London in the United Kingdom.

The merchants have a number of benefits. As a ‘local currency’, the app is targeted to local businesses and helps them compete with the major national and international brands. Consumers are encouraged to support the local community. Transaction fees are less than visa and additional tools are made available, such as data analysis and bookkeeping. For the consumer, the Colu wallet is more convenient as there is no need to carry cash.

In Tel Aviv, one Colu currency is currently worth 1 Israeli shekel (US$0.28) and is immediately transferable. When they first sign up, consumers receive 25 shekels (US$7) and, when they top up, they receive an extra 10% in addition to their top up amount. These customer acquisition costs have been funded from an initial round of investment. Future plans are to replace these acquisition costs with crypto-tokens earned when the Colu local currency is used for payment. The tokens are sourced from an Initial Coin Offering (ICO) and their value will fluctuate based on supply and demand. As indicated in Colu’s Whitepaper [14], the supply of tokens is finite and over time, as activity with the local currency increases, the value of the tokens is expected to rise, thereby encouraging more local currency activity.

...

The local currency introduced by Colu is secured by blockchain technology. Initial financing has been raised via an Initial Coin Offering (ICO) and future plans are to provide digital tokens as rewards to participants. This literature review gives a brief overview of blockchain technology, followed by the increasing acceptance of ICOs by investors. In this paper, the theoretical framework for the spread of local currency is based on Rogers’ Innovation Diffusion Theory (IDT) and propositions are developed based on IDT."

(https://link.springer.com/chapter/10.1007/978-3-319-91716-0_52)


Discussion

Norman Shaw:

"Local currencies are new and their success depends upon their adoption and diffusion by merchants and consumers. According to Innovation Diffusion Theory [32], an innovation has to satisfy five characteristics in order to be successfully adopted: relative advantage, compatibility, complexity, trialability and observability. We proposed that local currencies do satisfy these five characteristics. In additon, because personal data is being shared, we proposed that the privacy protection is another important characteristic.

Colu is a company in Israel, which has extended the Ethereum platform to create a currency to be used within a geographical area. They have created local currencies in four areas: two in the United Kingdom and two in Israel. Our case study investigated the adoption in Tel Aviv. The Colu local currency is equivalent in value to one Israeli shekel (US$0.28). Consumers can buy local shekels and use them at member merchants via the Colu mobile wallet. Payments by local shekels are instead of cash or credit.

From semi-structured interviews with merchants and consumers, all propositions were supported. Consumers enjoyed the advantage of paying with their mobile phone, receiving a bonus for signing up and another bonus for topping up their local shekel balance. Merchants enjoyed the advantage of lower transaction fees when handling payments. They also were able to advertise their business via the Colu app, encouraging consumers to shop within the community. Payments via the Colu wallet were compatible with existing payment options. Merchants received full credit for the local currency they accepted. The mobile app was easy to use. Merchants were able to trial the local currency, while still accepting other payment mechanisms. Consumers were able to trial Colu on their mobile phone, while still being able to pay with cash, credit or debit if they so chose. All participants could observe the results of using Colu and make a decision to continue its use. Our propositions have been supported via the case study.

This is a case study where the investigation was limited to one city. A limited number of interviews were conducted gathering opinions, which in turn were interpreted by the researcher. One of the findings was that relative advantage was a key influencing factor. Therefore there must be an understanding of what alternative payment methods are available. In the case of Tel Aviv, ‘tap and pay’Footnote1 is not readily available so consumers do not have the option of waving a plastic card or a smartphone over a terminal. Results may be different where tap and pay is an available means of payment. This qualitative study was limited in scope and results are not generalizable. However, they may be transferable to similar situations where a local currency is introduced within a defined geographical area.


The focus of this research was on the use of a local currency in one specific market. Future researchers could extend this research by conducting a similar qualitative approach in other locations where local currencies are available. When the local currency wallet becomes more popular, users could be surveyed and sufficient sample size could be collected for quantitative analysis. Current rewards for using the local currency are in the form of extra funds that can be used for purchases. Future plans are to replace the acquisition bonus with crypto-tokens. Future research can then investigate consumer acceptance of these tokens as rewards for using local currency. Many countries are moving to having less cash in circulation [39]. The alternative to cash is digital money where payments can be made via a plastic card or a digital wallet on the smartphone. Both qualitative and quantitative studies of specific applications would assist practitioners in determining best practice to increase the rate of diffusion of their products.


Conclusion:

Innovation Diffusion Theory can be used as a foundation to guide theory building around the adoption of local currencies. Because sensitive information concerning payments is involved, theory can be extended with the construct of privacy. In this case study, both merchant and consumer enjoyed a relative advantage. The merchant had transaction fees that were lower than credit card fees. Consumers were given a sign-up bonus and a top-up bonus – free money! Future plans are to reward participants with tokens, whose value will depend upon the local currency activity.

The implications for practitioners are that they should ensure that local currency is not viewed as something radically new, but rather as a simple extension of existing payment mechanisms. Merchants do not have to make major changes: they can accept local currencies while at the same time accepting all other forms of payments. Consumers can simply add the Colu mobile wallet to their smartphone, see the locations of local merchants, and choose to pay with local currency or existing forms of payment. The ability to trial and observe allows all parties to assess the relative advantages in order to make an adoption decision."

(https://link.springer.com/chapter/10.1007/978-3-319-91716-0_52)


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