Digital Currency

Credit based business system, how do they work? (money for credits)

Brett Gardner Serial Entrepreneur

Last updated on October 1st, 2017

I have been thinking about a business concept but need to work out the logistics to prove viability.


1. How do virtual credits work?

- Purchasing (consumer)

- Redeeming credits (businesses)

- Transferring of credits (consumer to businesses)

- Tracking of credits (blockchain? user accounts?)

2. Are there any reliable systems in place I can take advantage of to set up this credit system?

- WooCommerce, credit-token plugins, etc.

3. Things to be cautious of when getting into credit/token industry?

- I know this one is vague but if there are questions I don't know to ask, it would help to get some insight.

4. Because this is an online company without a physical location, what are the issues we can run into with customers using credits in different states?

- Tax differences between states

5. Limiting transfer of credits to only approved businesses (to keep users from using credits for illegal activities), Is this difficult to do?

I appreciate any information you can provide.

Cheers friends!

Paul Garcia marketing exec & business advisor

October 2nd, 2017

Brett, these are all certainly worthwhile research questions, but CFL is not your research department. You need to investigate these things and learn the business yourself firsthand if you plan to enter the market with a concept like you describe.

Be aware that the way the FTC treats credits will affect your business and you will likely need to follow "gift card" rules, which may include not being able to count any money used to purchase credits until they are redeemed or five years passes for unredeemed credits. For tax and accounting advice on how various states treat these token (gift-card-like) purchases, you would probably benefit from talking to a large accounting firm that represents clients doing business in every state.

What you're describing is not very different from how companies issue gift cards that use the Visa or Mastercard network to transfer funds from card holder to merchant. Talk to a national payment gateway about what security, notification, and transactional requirements your company will be obligated to, as well as ascertaining the fee structure for processing payments through whatever network will allow your credits to be available to spend with all the merchants you want to include.

If you're not talking about an exclusive collection of merchants for whom you've made it easy to collect payment or offered an incentive better than a regular credit card, then you may be in direct competition with the Visa Gift Card (and similar) which thoroughly dominate the market and have all the details already figured out.

My guess is that starting a conversation with a major payment gateway like Chase Paymentech is going to be an important first step for you. Without billions of dollars of infrastructure (or an exclusive redemption network), it's unlikely a startup is going to displace an exiting payment gateway and become one, so you're going to need one.

Good luck!

Vince Talbert Chairman Network for Good

October 1st, 2017

Happy to discuss over the phone. Too much to type

Brett Gardner Serial Entrepreneur

October 2nd, 2017

@Paul Garcia, I appreciate the feed-back.

"If you're not talking about an exclusive collection of merchants for whom you've made it easy to collect payment or offered an incentive better than a regular credit card.." ,This is exactly what I am bringing to the table for our users.

I have been attempting to contact local college professors to schedule meetings to discuss the process of transferring money to token/credits, trading those tokens within our business network for goods, then businesses redeeming those tokens for money again. One of the main issues is not understanding how the "token" is treated when you have a virtual currency.

As for Chase Paymentech, I think that is a great idea and I will follow up with them.

Curt Sahakian Attorney

October 1st, 2017

Sounds interesting. I wish I knew what you are talking about.

How would you explain your proposed service to a prospective customer?

Todd Oliver Proven Sales Leader, Process Implementator

October 1st, 2017

Due to lack of information, I will be unable to provide much insight, however I recommend credits and purchase of credits be designed to improve the customer experience while driving the behavior you want (ie a lot of use, consistent spend, auto-purchase).

Credits to purchase may involve state income tax. Again insufficient information has been shared.

Shahin M. Jobless

October 1st, 2017

Hello This is Shahin, It’s a while I’m following you,as much as I could, just with the emails I’m receiving from you, Since I don’t use a desktop and it’s just my phone, So, I wanted to see if you have an application which I could use on my phone?