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I have tons of loyalty cards in my wallet and am always forgetting about them or leaving them at home and collecting yet another punch card when I return to the same retailer. While this is annoying for me, it’s costly for businesses, especially small ones.

Cardagin Networks aims to solve that problem. Its mobile platform digitizes loyalty card programs for small businesses, with a focus on college towns. It also allows local businesses to publish mobile ads and push them to members of their loyalty programs.

Cardagin is launching its service in April, beginning with the University of Virginia’s population in Charlottesville, VA, where the company is headquartered. CEO and founder Rob Masri believes college towns are perfect for this type of service because college students are always looking to save money and they use their mobile phones a lot. For the initial test in Charlottesville, Cardagin has enlisted several campus representatives to sign up others on campus; these reps include sports team captains, active fraternity and sorority members, and representatives from campus dorms.

Once the company has gathered data on the test market, it plans to expand to other college towns, such as Blacksburg, VA (where Virginia Tech is located), Chapel Hill, NC, and Tuscaloosa, AL. In addition, Masri is reaching out to local chambers of commerce, local ad agencies, and media outlets to help market and distribute the Cardagin solution on a revenue-share basis.

Although the company will be providing consumers with a free service to manage their loyalty programs, its main focus is on providing solutions for businesses. For a yearly access fee of $600-1,000 for the test period, merchants receive scanner-enabled kiosks, which are integrated with various point-of-sale systems, to scan mobile phones. They also receive access to Cardagin’s site, which will track coupon usage, visits, and ad effectiveness.

Businesses are charged an additional fee of $1 per day per ad to create and publish ads on the network as well as a fee of $0.10-0.25 per push to send mobile ads to consumers (the fee will vary depending on how specific the targeted demographic is). The consumer offering is free, but in the future there may be an optional monthly fee for users who want to receive promotions outside of their loyalty programs or to get real-time “discounts on demand” from, for example, local restaurants.

Cardagin’s service reduces costs for businesses that spend money printing cards, many of which are lost and don’t have any consumer information associated with them, allows smaller businesses that may not be that tech savvy to take advantage of mobile trends, eliminates fraud from stolen or counterfeit cards, and provides businesses a way to interact with loyal customers, identifying and better targeting them.

The mobile app is focused on smartphones, as those will enable mobile scanning, and is compatible with multiple platforms, including iPhone, Palm, Android, Windows Mobile, Blackberry, and Symbian. If a consumer does not have a smartphone and still wants to participate, however, he or she can manage programs online and type in the associated phone number at the retail location to receive similar benefits.

Cardagin has signed up five Charlottesville businesses for its initial 30-day test launch to ensure its systems can handle the traffic. After that, Masri expects 100 or more local businesses to digitize their programs. Based on its revenue model, Cardagin must sign up 2,500 users in the first year (roughly 10% of the University of Virginia population) as well as 50 businesses per year, each of which use the ad components of the service conservatively.

Although there are many location-based services such as Foursquare and Gowalla as well as loyalty program managers such as Scanaroo and Cardstar, Masri considers his competition to be ad outlets that are used in local markets, such as local radio, TV, and newspapers. He believes those outlets are used by local businesses without any knowledge of expected return on investment or tracking.

Cardagin, which first presented its concept at DEMOfall last year, has just secured $1 million in a first round of funding from private angels and investors. The company also presented at Capital Call in Reston, VA this week. Capital Call is hosted by Cooley Godward Kronish, PricewaterhouseCoopers, Silicon Valley Bank, Comerica Bank and Deloitte and is an opportunity for selected startups to present to 100 venture capitalists and private-equity investors.

Cardagin partnered with IT provider Sysnet Group to develop its technology.

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