Tag Archives: trade exchange

Sardex, an emerging model for credit clearing exchanges?

Last week I had occasion to visit the Italian island of Sardinia and spend a few hours meeting with the founders and managers of a commercial trade exchange called Sardex. Here below is an abbreviated report of what I learned. The pdf version of the report can be found here.

Sardex, a brief report
by Thomas H. Greco, Jr. August 15, 2015
I recently spent a few days on the Italian island of Sardinia conferring with the founders and administrators of Sardex (http://www.sardex.net/), a commercial credit clearing exchange that has been notable for its success in organizing small businesses and service providers on this island of about 1.6 million people.

I’ve known about Sardex since almost its beginning five years ago and have corresponded over the past few years with Giuseppe Littera, one of its founders, but this was the first opportunity I’ve had to get an inside look at their operation. I came away with a pretty good understanding of how they operate and the impression that the Sardex structures, procedures, and protocols come closer to optimal than any other trade exchange I’ve seen. It appears to be a developing model that is both scalable and replicable.

I will not attempt to provide here a comprehensive report or detailed analysis, rather I will highlight a few major points and provide some sources of additional information for those who are interested in doing their own research.

Some highlights:
Current membership: ~3,000
Current transaction turnover: ~1.5 million euro equivalent per month
Expected turnover for 2015: 50 million
Velocity of credit circulation: 12 times per year
Employees included as sub-accounts: 1,000

When I asked about the key factors that account for their success, here is some of what I was told:

1. Founders are dedicated to the mission to relocalize and rehumanize the economy and to reconnect people by enabling the creation of interest-free local liquidity based on the production capacity of local businesses.

2. Social solidarity and cultural cohesion, while very important and part of the mission, were NOT a pre-existing factor that would account for their early success. In fact, they have had to work hard to develop social solidarity and cooperation amongst their members, but this is now changing. One account broker told me, “I can see how behavior of many of our members has changed. When the financial crisis first began, they were starting to lay off employees or cut their wages, and they were reluctant to spend their euros. This made matters worse as the circulation of money slowed down. But as they began to participate in the process of earning and spending trade credits, they began to increase pay to their workers and to invest in their education. In one case, when a member’s shop was burglarized, other members stepped up to help by donating some of their trade credits to help their fellow member recover from the loss.”

That anecdote demonstrates the differences in behavior that results when people experience scarcity compared to when they experience abundance. In this case, the scarcity of euros caused behavior to change in the direction of reduced willingness to spend and the contraction of overall economic activity. But their experience with trade credit was much different. Realizing the greater availability of trade credits, and finding it easier to earn them, leads people to experience abundance and to be more generous and spend more liberally.

3. I was surprised to learn that the Sardex revenue model relies mainly upon initiation fees and annual membership fees (collected in euros); and that they had decided early-on to stop charging fees on transactions. For me, that approach is counter intuitive in that I have long held the view that recruitment would be most successful if membership were made easy, low cost, and risk free, and that it seems reasonable to apply the principle that users pay in proportion to the amount of services they receive. In this case, that principal would mean that those that receive more credit clearing services should pay more. Well, this may be a case where successful practice trumps rational theory. Marketing specialists should look closely at the dimensions of this phenomenon.

There is however some logic in this approach in that, since the cost of participation is relatively fixed, members should seek to maximize the benefits of their membership by trading more within the network. Initiation fees are set according to the size of the business and range from 150 to 1,000 euros. Annual membership fees are likewise based mainly on turnover and range from 350 to 2,500 euros.

4. Strong member support by an effective staff of brokers who help to arrange trades, especially for those that have high earning capacity to avoid excessive accumulation and high positive trade credit balances.

5. Recruitment strategy tries to replicate the supply chain, i.e., bring in businesses that are the suppliers of existing members or prospective members.

6. “Solidarity threshold.” Requirement that members offer their goods and services for trade credit at the same prices as their euro prices, and that payment be accepted 100% in trade credit on all transactions of less than 1,000 euros. “Blended trades,” i.e., payment in a combination of trade credits and euros are allowed on larger purchases, according to a sliding scale).

7. (a) Restrict membership to companies that have a registered office in Sardinia. This promotes social solidarity and excludes large multi-national corporations. (b) Avoid “saturation” (accepting too many members that offer the same line of products or services).
[While I am fully supportive of the former of these, and would indeed, permanently exclude multi-national companies, this latter practice of avoiding saturation I consider to be of use only in the initial stage of establishing credit clearing as a credible means of exchange and an effective source of local liquidity. Ultimately, I believe that membership must be open to any community-based small or medium enterprise (SME) that meets the basic qualifications for membership. Of course, not all of them will qualify for lines of credit.]

8. Fully compliant with reporting and tax regulations. Transparency is a matter of fundamental importance.

9. Emphasis on monetizing the unused capacity of members. Connecting unused supplies with unmet needs is a primary benefit of credit clearing services.

The Sardex company has been consulting with other groups to replicate their system in seven other regions around Italy. In the future, Sardex is planning to initiate a rebate program to bring consumers into the trading community, which will enhance the circulation of local trade credits, make Sardex better known, and stimulate more sales for their business members.

Here below is a list of a few of the many reports and sources of information about Sardex. Readers are invited to add others as comments.

From an idea to a scalable working model: merging economic benefits with social values in Sardex, by Giuseppe Littera, et al, at the London School of Economic, Inaugural WINIR Conference, 11-14 September 2014, Greenwich, London, UK. http://eprints.lse.ac.uk/59406/1/__lse.ac.uk_storage_LIBRARY_Secondary_libfile_shared_repository_Content_Dini%2C%20P_From%20idea%20to%20scalable%20model_Dini_From%20idea%20to%20scalable%20model_2014.pdf
You can get a pretty good picture of the distinctive features of Sardex by viewing Giuseppe Littera’s presentation that was made (in English) at a conference in Volos, Greece, in 2014. It is to be found on YouTube at, https://youtu.be/rvaL2A8juz0
Report (in Italian) in the Italian daily newspaper, La Repubblica: Dalla Sardegna al resto d’Italia. Sardex inventa la moneta complementare. “Abbiamo ripensato l’economia.” http://www.repubblica.it/next/2014/06/23/news/dalla_sardegna_al_resto_d_italia_sardex_inventa_la_moneta_complementare_abbiamo_ripensato_l_economia-89771112/?refresh_ce. [English translation needed.]

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Excitement mounts over upcoming IRTA Convention!

The International Reciprocal Exchange Association (IRTA), the premier association of the commercial “barter” industry, has been for more than forty years promoting the interests of small and medium sized enterprises by assisting its member trade exchanges to provide them with liquidity and effective opportunities for moneyless trading.

Since 2005, IRTA has been reaching out to the wider grassroots community of researchers, developers, and organizers of private currencies and complementary exchange mechanisms and has broadened its advocacy to include them.

The upcoming 34th Annual International Convention of the IRTA in Las Vegas will provide a unique opportunity for social entrepreneurs and monetary activists to further consolidate programs of cooperation with the well-established commercial “barter” sector of the moneyless exchange movement. The Convention will be held from Sept. 19 thru 21 at the Venetian Resort in Las Vegas.

Along with IRTA President and experienced trade exchange operator Annette Riggs, and Rob van Hilten, Executive Director of QOIN, a consultancy for community currencies, I will be a panelist in a Saturday session (September 21) titled Understanding Diverse Exchange System Models: From Bitcoin and Berkshares, to Transparent Credit Clearing Networks. This session will consider three basic topics of discussion:

Bitcoin, the good, the bad, and the ugly.

The benefits and limitations of cash-based local currencies.

The emerging global exchange network.

There is still time to register for this important event. You can get details about the convention program and secure your place by visiting the IRTA website at http://www.irta.com/.

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Complimentary Currency Systems: Richard Logie at TEDxLeeds

Richard Logie has been for a long time one of the leaders in the commercial  barter industry. As owner and operator of The Business Exchange in Scotland and developer of GETS, a moneyless trading platform, Richard has a wealth of knowledge about moneyless exchange in general. His presentation below provides a valuable learning tool for anyone, either in the entrepreneurial realm or at the grassroots level, who is starting or operating a currency or exchange system.

Please pay particular attention to the way in which Richard determines the credit lines to be provided to members’ accounts, the list of advantages that membership in a credit clearing exchange provides, and the elements that need to be standardized in order for exchanges to be effectively networked together.–t.h.g.

Vermont Business Exchange, an Emerging Force for Local Trade

The localization of an economy requires local control of credit. That can be achieved by participation in a local credit clearing association. There are many such business-to-business (B2B) exchanges that provide this service on a for-profit basis. Now the lines between for-profit and non-profit are beginning to blur as credit clearing services are teaming up with existing non-profit business organizations. One example is the Vermont Business Exchange which is now being launched in association with Vermont Business for Social Responsibility.

Watch this video of a recent interview in which Amy Kirschner explains the project history, vision, and current status.

Modern Trade and Barter – How It Works

IMS is one of the leading trade exchange operators in the United States. It’s a publicly traded company that has in about 24 years grown from one local trade exchange into a network of more than a dozen trade exchanges scattered around North America. The IMS website contains a five minute video that does a pretty good job of explaining how commercial trade exchanges work. View it here.

Credit Clearing Already a Proven Means of Exchanging Goods and Services

People often ask me how the credit clearing process that I advocate might be established and where existing successful models are to be found. I point them to the commercial “barter” sector, the 75 year old WIR Bank in Switzerland, and a few exchange alternatives that have been emerging spontaneously from the grassroots. Of course, what these trade exchanges offer is not “barter” at all, but credit clearing.

Significant as it is, the commercial trade exchange business is not well known because it does not yet involve consumers or employees to any great extent. It services businesses, mostly small and medium sized businesses (SMEs), and mostly at the retail level or in the service sector. Credit clearing and private currencies are important elements in the economy at any time, but they become even more necessary during times of financial disruption such as the current one.

On June 25 Sky News in the UK did a live interview with one of the leaders in the trade exchange industry, Wayne Sharpe, the charismatic founder and chief executive of Bartercard, International. Sharpe discussed the role that his company, and others like it, plays in revitalising the UK economy by helping businesses to “reserve cash, reduces costs and increase sales and profitability through a sophisticated system of barter.” Here is a transcript of that interview taken from the Bartercard website. (Thanks to Bob Meyer of Barter  News for alerting me to this report). – t.h.g

Why cash isn’t king – The flexible friend that can help businesses beat recession:

Bartercard works like a credit card, but transacting by clients’ own goods and services via its own unique Trade Pound ‘currency’. On joining, account holders receive a transaction card and an interest-free line of credit. When spare capacity is sold, members’ accounts are credited with trade pounds. When purchases are made, trade pounds are deducted. Bartercard allows members to trade without the need to spend valuable cash or engage in a direct swap.
Given recent global economic developments, Bartercard is proving totally relevant. It’s phenomenal growth in the UK market over recent months is testament to this. One reason for the rapid growth is that Bartercard charges success-based fees; charging a small commission on each trade so, if it doesn’t produce results, costs to its members are negligible.

Another reason for Bartercard’s success is the support it provides the beleaguered SME sector. SMEs are the lifeblood of the British economy; accounting for over 60% of domestic GDP yet, in the main, they have been overlooked by government.

Lavish financial support from government has been reserved for selected big businesses and in particular, the banking sector. Instead of using the money to stimulate the economy, the banks have devoted these huge resources to bolstering balance sheets and improving share price. The banks are failing to lend even to those SMEs with solid foundations and a great track record but which need financial support in extremely difficult trading conditions.
Bartercard is providing a real solution. More than 80% of its members are SME’s and Bartercard aims to generate 10% in additional sales for each and every member business, then use that trade to offset regular cash expense, thus improving cash profit by up to 20%.

With over 21 million transactions and more that $15 Billion in trade volume worldwide since inception Bartercard is a proven method to increase SME;s trade.
“I have lived in the UK for over 7 years now and I know and feel for the SME’s – they are the heart of this nation and we will help them beat the recession in any and every way we can” says the eternally upbeat Mr. Sharpe.

It seems the Sky is the limit.