SANTA CRUZ — With a healthy breakfast under his belt, Jon Underwood pulled out his smartphone to pay the cashier at River Café in Santa Cruz and in about a minute gets a text message saying he’s just donated to his favorite local nonprofit organization.
“See? It’s faster than paying with a Visa,” he said.
Underwood is founding chief executive officer of CloudPay.org, a secure mobile payment system that allows people to pay participating local merchants for products and services electronically. Unlike the growing number of mobile payment systems on the market, however, CloudPay skips credit card transaction fees for merchants, diverting a percentage of each transaction to a local nonprofit agency and charging a flat fee per transaction.
It is, Underwood said, a customer loyalty and marketing program rolled up into a buy-local and support-nonprofits campaign. CloudPay.org is a movement to change the way we shop.
“We’re changing people’s behavior,” Underwood said. “Once they try it, they have a smile on their face.”
For Claire Palazzo, owner of River Café, CloudPay is a way to put money back in the community and shift her monthly credit card transaction fees of $500-$700 to a better cause.
“Ninety percent of what I buy is local,” Palazzo said. “That’s what it’s all about — supporting each other. I use a local credit card company but that percentage goes for handling my credit cards. I’d rather have it go to local organizations in the community to help those in need.”
How it works
CloudPay users take a few minutes to set up their account on a mobile device. They choose a local nonprofit organization to receive 3 percent from their purchases at participating businesses. When they’re ready to pay, they tell the cashier that they’re using CloudPay and an electronic transaction is completed. Almost instantly, customers receive a text message confirming the transaction and showing how much they just donated to their favorite nonprofit.
Underwood is banking on the idea that merchants, who are saddled with high payments for transaction fees to credit companies such as Visa and MasterCard, are willing to pay the 3 percent to nonprofits plus a 10 cents per transaction fee to CloudPay because it’s cheaper than credit transaction fees and drives customers to their business. Merchants only pay when there is a CloudPay transaction.
Customers and merchants are insured and it keeps spending local and drives customer loyalty and appreciation, Underwood said.
“We consider money like water and are trying to get it to flow differently,” Underwood said.
Merchants are also able to work in cash or CloudPay credit, which they can use to pay other CloudPay merchants. There is no fee to convert credit to cash.
“It’s a way I can support a nonprofit that I really believe in almost on a daily basis in my choices in how I spend money,” said Armand Ruby, a local water quality consultant and angel investor in CloudPay. “An impressive amount of money could be raised for nonprofits. It could really be a game-changer for nonprofits.”
CloudPay went live in October in a limited pilot launch for friends and family. Ruby swears it is faster than using a credit card and has gotten him to try new restaurants.
“For me, personally, I’ll probably rotate through an environmental nonprofit, then a services (organization), and then arts, like the 418 Project,” he said.
CloudPay is one of the state’s early California Benefit corporations (B-Corp), or a mission-driven for-profit company that is focused on making a materially positive impact societally and environmentally. New Leaf Markets is another local B-Corp. While providing “a fair rate of return,” the company is focused on making a positive impact in the community.
Underwood, a former derivatives trader at the Pacific Stock Exchange in San Francisco who became a Waldorf teacher for six years, grew fascinated with the idea of finding stronger revenue resources for community nonprofit organizations.
“What if every day a dollar changed hands a nonprofit got a piece of that?” he asked.
What he realized was that merchants are trying to reach the community and the nonprofits are well connected to their constituents.
A B-Corp is a way to build the company’s values into the DNA of the business, he said.
“It’s the buffer for greed that keeps things in balance.”
The company is a previous winner of the HUB Social Impact Competition in San Francisco and has received funding from Good Capital/Hub Ventures, Village Capital, Armand and Underwood.
“People love the idea. We have incredible feedback from almost everybody,” Underwood said. The barriers are to get people to sign up. “But, as soon as your account is set up, it’s really easy from then.”
Underwood hopes the technology eventually will be adopted in other communities.
“We’re building a regional resilience,” he said. “What this really is it’s like a teepee. All three poles lean together and make a certain strength to it.”
Follow Sentinel correspondent Jennifer Pittman at Twitter.com/jenniferpittman
AT A GLANCE
WHAT: A California Benefit Corp. (B-Corp), or mission-driven company, which provides a new mobile electronic payment system that will substitute merchant fees to credit companies for payments to local nonprofits of a customer’s choosing.
HEADQUARTERS: The Old Sash Mill. 303 Potrero St., Building 43, Suite 204, Santa Cruz.
BACKGROUND: Founded as a limited liability company in 2010 and as a California B-Corp in 2012. The technology went live in October and is still in its pilot phase.
LEADERSHIP: Jon Underwood, founding president and CEO
INFORMATION: 831-621-5060; https://cloudpay.org
INVESTORS: Funded by Good Capital/Hub Ventures, Village Capital, a local investor and Underwood.
GUIDANCE: The company hopes to create in the next few years a regional payment network with 1,000 participating merchants on the Central Coast.
FOOD/BEVERAGE: Café Gratitude, Gabriella Café, Pizzeria Avanti, River Café, Windmill Café
RETAIL: Chefworks, Childish, Om Gallery, Puppy Breath Boutique, Samaya’s Eco-Flooring, Slow Coast, Sprockets Bike Shop, Water at Morrissey
HEALTH/WELLNESS: All Ways Well Within ““ Holistic Therapies, Get Your Body Back,
The Maple Street Acupuncture Clinic, Toadal Fitness (Cabrillo, Downtown and West Side locations)
AUTOMOTIVE: Water Star Motors