- Dauren Aubakirov
- Artur Serra
- Brian Weinberg
- Hemali Joshi
- Soren Gigler
- Jitesh Singh
- Jimmy Caceres
- Matthew O'Grady
- Noah Gigler
European Solidarity Voucher
to ensure liquidity of SMEs in the EU’s tourism sector
Challenge sponsored by the European Commission
The impact of the coronavirus crisis on SMEs and micro-businesses in the tourism sector In the current situation of a general close down, the tourism sector suffers from severe cash flow problems and many providers risk going out of business unless they get support. To remedy this we propose to mobilise key business partners, such as online platforms via which most of the small tourism businesses connect with their clients, as well as credit card companies and payment system providers to come up with a voucher system for future consumption. Such a European Solidarity Voucher Scheme would aim at keeping small suppliers in Europe’s tourism sector (restaurants, bed&breakfast, small hotels) solvent during the COVID 19 crisis by selling services now and delivering them later. Similar schemes have already been launched for small local businesses e.g. in France https://soutien-commercants-artisans.fr/
Overall challenge: Solidarity Vouchers to deliver liquidity for Europe’s tourism sector
The European Solidarity Vouchers (voucher) Scheme incentives customers to buy services from suppliers in the tourism sector and consume the services after the crisis. Under the scheme customers would buy vouchers (for a small hotel or B&B, or restaurant) via existing aggregator platforms.
An emphasis of the solidarity scheme is that all actors are coming together to support small businesses. The suggestion is that the online platforms (i.e. booking.com; expedia.com, etc.) would be willing to waive some of their booking fees based on the motivation of demonstrate solidarity with small businesses. Second, the SMEs themselves would offer discounts (10-15%) to costumers to provide them with incentives to purchase the vouchers. Finally, the consumers would make a critical contribution to finance the SMEs and micro-businesses through the purchase of the solidarity vouchers, knowing that they won’t be able to use the vouchers for the next couple of weeks or even months.
1) Incentivizing the customer with a guarantee A key challenge of the scheme is to develop the right incentives for citizens to purchase solidarity vouchers. Given the current uncertainty of the economic outlook, many citizens are currently not planning any vacations, or make reservations in restaurants or hotels. Many people however are realizing that their favorite hotel, bed and breakfast or restaurant are struggling to survive the current coronavirus crisis and that thee support from consumers is needed.
2) Covering the financial risks of potential bankruptcies
Many customers will buy vouchers for such suppliers only if they have a guarantee that money spent on vouchers is not lost if the supplier becomes insolvent. A key challenge is how to design the voucher scheme. Would a combination of getting a discount and a guarantee provide sufficient incentives for consumer to purchase the vouchers and thus providing liquidity to cash-strapped SMEs. There are different ways to addressing this challenge.
Trading of vouchers: The approach for a voucher guarantee is that, in the case of a business going bankrupt, to cover the cost of the holder of the voucher for that business redeeming it with another provider participating in the scheme that is still solvent.
Consumers are taking all the risk: In this model, there is no coverage of the risk by the platforms, businesses or any intermediary. The consumers would be willing to take the full risk of the vouchers out of solidarity. This model has been developed in the California with the support of a pilot launched by Instagram. It might however be limiting since many consumers do not have the income nor the appetite to cover all the risk.
EU guarantee scheme: This model would develop a dedicated guarantee scheme supported by the European Commission. The dedicated guarantee scheme would significantly lower the risk of bankruptcy of SMEs by providing the necessary financial backing to the voucher scheme. A key question is how to design a scheme that would be based on a public-private partnership and allow for a risk sharing between the EU and the online platforms. What would be the basis for this risk-sharing scheme and what would be the incentives for the platforms to participate in such a collective guarantee scheme. What risk coverage should be provided in order to enable the maximum coverage of SMEs across Europe? What would be the impact of such a guarantee scheme? How many restaurants, hotels and bed and breakfast could be covered with a given budget? What budget would be needed for the guarantee scheme to have an EU-wide reach and to have a significant impact on the tourism sector?
A key challenge is to predict the default rate of the small businesses and how to adjust the scheme to the very different economic and socio-cultural situation across the different regions of Europe. It is being estimated that the default rate will vary significantly between the stronger and weaker economic regions of Europe.
3) Social Economy: How to develop a socially balanced scheme?
A key concern of the scheme is to be as inclusive as possible and to ensure a coverage across all regions and small businesses across Europe. The economic impact of the crisis is expected to affect dis proportionally economically weaker regions, which have significantly lower income levels and less public resources available to support local businesses. Furthermore, the purchasing power of consumers varies significantly across Europa’s region, so that the uptake of the solidarity voucher scheme might vary significantly across Europe. Would it be possible to develop a scheme, whereby structurally poorer region receive a higher coverage rate for the vouchers.
A second key concern is the viability of smaller, national or even local online platforms that are confronted with severe competition from the large platforms. How could the scheme ensure that the small market actors have equal opportunities to participate and benefit from the program? How would it be possible to reach the many smaller platforms that focus on niche markets or are very regionally focused in their scope?
4) Uptake of the scheme
A key challenge for the program is to ensure a strong update of the program by the consumers. The scheme would be most successful, similar to any insurance scheme, if there is a very high uptake of the scheme. For this to happen a very strong communications and outreach, strategy would be needed? How should the program be branded and what would be the best communications strategy to reach the most possible amount of SMEs and consumers. What should be the main messages of a possible communications campaign and which communications should be reached to reach citizens across the EU, including the elderly and more vulnerable groups, which frequently do not have access to the Internet?
5) Limited digitalization and digital skills of SMEs
Another key challenge is that the scheme requires a certain digital maturity of small businesses in the tourism industry. The main concept is based on the issuing of the vouchers in a digital format and that the small businesses already have an online presence with the online platforms or their own websites where consumers can purchase online vouchers or gift cards. How could the scheme also support small and micro-businesses that have a limited online presence and/or limited digital skills?
6) Technological Solutions
What technological solutions would be best suited to implement the program? Should a centralized online platform be developed to match the demand with the supply of vouchers? Alternatively could the program be implemented through the existing online platforms? What changes would have to be made to the currently operating online platforms to implement the scheme. Would it be useful to combine the scheme with existing crowdfunding platforms or would it be advisable to develop a new platform for the program, where consumers can provide funding to individual SMEs through the crowdfunding approach and the solidarity voucher scheme.
7) Role of Role of E-platforms
Many platforms (e.g.: quandoo, tablebooker, eatingeurope, justeat, ubereats, booking, tripadvisor etc.) already match customers with businesses. They would manage distribution of vouchers to consumers. What role would the platforms have in the voucher scheme? How could the online platforms and their associated banks participate in a risk sharing mechanisms between the public and private sector to cover the risk of the potential bankruptcy of small business owners? What would be an appropriate mechanism for the online platform to set up and individual or industry-wide guarantee fund to support the voucher schemes? Under which conditions would the platforms be willing to waive some of their fees they charge to the service providers?
How should the program be implemented? What would be the suggested governance structure of the suggested public-private partnership? What role would Member States, the European Investment Bank and National Promotional Banks play in developing and implementing the scheme? What role would the existing online platforms have? How could the SMEs and micro-businesses best participate in the implementation?
9) Economic Impact and Benefits of an EU Solidarity Guarantee Scheme
The goal of the scheme is to help ease the effects of a potential economic recession following the corona crisis across the EU and in particular in countries that ware most affected by the crisis. The objective is that consumers get real benefits, without risk, by helping tourism sector suppliers stay alive. Small suppliers (often micro-enterprises) would benefit from the cash advance that helps them avoid a liquidity bottleneck.
A key open question however is what would be the expected economic impact of the program? How many small businesses could benefit from the program and what would be the effects on supporting the financial liquidity of businesses. To what extent would the program help SMEs and micro-businesses to avoid bankruptcy?