LocalBonus Raises Funding, Expands Merchant Reward Program

New York-based loyalty startup LocalBonus announced today that it will be expanding beyond its first pilot market of New York City to four new cities, including Denver, Portland, Sacramento and Seattle. The company provides local merchants with turn-key rewards programs, allowing them to offer customer loyalty incentives to shoppers using just their existing credit or debit card. LocalBonus is also announcing over $500,000 in seed funding today, raised from Payment Ventures, Entrepreneurs Roundtable Accelerator and other angel investors.

If what LocalBonus does sounds familiar, that’s because this kind of simple reward system for small businesses is a popular business model for startups of late. There’s Swipely, which provides similar reward offerings and recently introduced a dashboard tool to help local merchants track the effectiveness of their campaigns; CardSpring, which also ties coupons (or anything else for that matter) to a customer’s existing payment cards via its API and debuted at SXSW this year; and Perkville, which offers loyalty bonuses that reward things like referrals as well as shopping.

LocalBonus founder and CEO Derek Webster knows that it’s a crowded field, but he thinks his company offers something the other systems don’t, thanks to the transferability of its rewards.

“One of the biggest pain points with loyalty programs, especially for local businesses, is that it’s difficult to save up for an award at one place,” he said in an interview. “You might have one or two punches on a stamp card at a bunch of different places, but it doesn’t add up to a reward anywhere. LocalBonus Points are a universal currency – every merchant in our program offers points in the same currency that can be combined for rewards.”

It’s definitely an advantage for customers, since they redeem points more quickly and get rewarded more often for their shopping behavior, but it might not be viewed quite as positively by merchants. As Kiip founder Brian Wong told BetaKit in a previous interview, when rewards aren’t tied specifically to a single merchant, their value in terms of driving engagement at that specific vendor potentially goes down. Still, if LocalBonus can make the case that greater consumer appeal leads to higher use rates, it could convince even merchants that its universal approach is better. Also, Webster points out that LocalBonus’ way of doing things leads to a discovery advantage as customers look around for more places where they can earn LocalBonus rewards.

Webster also said that while he’s been watching larger competitors like PayPal and Square closely as they deploy their own integrated reward programs, he thinks his offering has big advantages for established businesses.

“We chose to integrate within the payments infrastructure because it has the widest penetration. LocalBonus supports any Visa, MasterCard or American Express card,” he told us. “We […] ultimately don’t want to be limited to one type of POS system.  By integrating into the payment network infrastructure, we can support practically any merchant that accepts cards.”

LocalBonus makes revenue by charging a fee, which covers costs associated with rewards and the startup’s services, every time members of its loyalty program shop at a LocalBonus-enabled merchants. Webster said they chose that model because it ties value directly to the business his company brings in. Others like Perkville charge a flat monthly subscription, so LocalBonus’ cost-per-engagement model might be more appealing to merchants concerned about ROI with a program like this.

With the $500,000 raised today, Webster says the company hopes to grow its network of partner stores, expand to more cities and bulk up its cross-merchant offerings and incentives. As an example of this, he points to the new “LocalBonus WolfPack,” which doubles rewards when five or more LocalBonus shoppers shop at the same venue on the same day.

The startup definitely isn’t alone in trying to bring loyalty programs to small businesses, but it does have an approach that differs enough from the rest to make it one to watch.

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