As major players in the US mobile phone-based contactless payments arena search for common ground, Bling Nation has seized the opportunity to launch a solution aimed at community banks. Robin Arnfield takes a close look at the opportunities and challenges that confront the start-up company.
There is widespread agreement among payments industry experts that the mobile phone provides the optimum delivery platform for contactless payments. However, with the exception of Japan – where mobile network operator DoCoMo’s osaifu keitei (wallet phone) service has attracted some 33 million users – contactless solutions utilising phones equipped with near-field communications (NFC) technology are, by and large, limited to pilot projects.
“In Japan, DoCoMo’s position as the dominant [mobile] network has enabled it to push the technology aggressively,” said Steve Brunswick, strategy manager for the information systems security unit of French electronics group Thales.
In most Western countries, Brunswick continued, the major obstacle to widespread adoption of mobile phone-based payments is the competing objectives of the major role players: banks, mobile network operators (MNOs) and phone manufacturers.
It against this background of fragmented interests that US start-up mobile payments technology vendor Bling Nation has begun carving a niche for itself in the mobile NFC payments arena in small-town America.
Based in Palo Alto, California, Bling’s business strategy is to offer a community payment service involving contactless NFC stickers attached to mobile phones. This solution enables community banks to bypass Visa and MasterCard debit card networks.
Core to Bling’s strategy is to get small local banks to sign up local merchants such as fast-food outlets, cinemas or dry-cleaners to take its standalone contactless readers, known as Blingers.
Banks also issue BlingTag contactless stickers to customers who sign up for the service, paying them reward points for each Bling transaction.
“Bling’s approach of creating community-based local payment networks in small towns is unique,” explained Carole Coye Benson, a consultant with US payments consultancy Glenbrook Partners.
“Bling is finding that the operational management of [its system] is pretty straightforward – and, significantly, that the processors which are serving many of its target banks are willing and able partners,” Coye Benson added.
“The reason for Bling Nation was that we wanted a name with a connotation of money, value and fun, but without the word pay,’’ Bling Nation co-CEO and co-founder Wences Casares explained to EPI.
“Most m-payment firms include ‘pay’ in their name, which makes branding difficult.”
Consumers have to call their bank and activate their BlingTag stickers in the same way they activate a debit card.
“The sticker gets associated with their cheque account, and acts as a more secure alternative to using a debit card,” Casares said.
“Unlike a card-based transaction, no customer information is shared with the merchant during a Bling payment.”
To make a purchase at a Bling-accepting merchant, the customer taps their Bling-enabled mobile phone against the Blinger. The customer gets a real-time short message service (SMS) text message confirming the transaction and stating how much money is left in their bank account and what their Bling reward balance is.
Most Bling transactions do not require a PIN to be entered on the mobile phone.
“The bank sets the security parameters,” Casares said. “It can stipulate that, the first time a customer uses Bling at a particular merchant, they have to enter their PIN. Or the bank can set a Bling transaction value floor limit, above which PINs have to be entered.”
Founded in 2007, Bling has amassed $28 million in funding from US venture capital firms such as Lightspeed Venture Partners and Meck, as well as $5 million in seed money from its founders.
Strong track record
“Casares is a known commodity in the VC [venture capital] community,” Ali Raza, executive vice-president at US consultancy Speer & Associates, told EPI. “He has a strong track record in the businesses he founded in his native Latin America.”
In May 2009, Bling launched a commercial rollout of its service with The State Bank in La Junta, Colorado, a town of 8,000 inhabitants. In November, Bling announced a second Colorado community bank, Park State Bank & Trust, had introduced its service in Woodland Park, Colorado.
Headquartered in La Junta, The State Bank has three branches in Colorado, while Park State Bank has just two branches.
For both banks, the attraction of Bling’s service was the ability to offer customers and merchants a low-cost alternative to debit cards, and, by offering customer rewards, to help keep shopping local.
The State Bank markets its Bling service and accompanying rewards programme to its 5,000 customers as Redi Pay Bling. Casares noted that, as of December 2009, The State Bank was seeing 50 percent consumer adoption and 70 percent merchant adoption for Redi Pay Bling.
“In the first 90 days after launching the service, we won 23 new business accounts as a result of offering m-payments, twice as many as we had won in the two previous years,” said Brad Rose, The State Bank’s vice-president of IT and Security, in a statement.
Redi Pay Bling transaction volume represented 20 percent of The State Bank’s local debit transaction volume as at September 2009. According to Rose, merchants who have enrolled in Redi Pay Bling are seeing higher BlingTag transaction volumes than debit card transactions.
“In La Junta and Woodland Park, the people using Bling include quite a few consumers over the age of 45 who used to write a lot of cheques before adopting Bling,” Casares said.
“They like the convenience of Bling, of not having to reach into their wallet for a card or cheque book. Also, they like the transaction confirmation and account balance that Bling sends via SMS.
“With a debit card transaction, they don’t know how much is left in their bank account.”
Bling’s strategy has drawn a strongly positive reaction from Ellen Carney, a senior analyst with research firm Forrester Research.
Writing in Hot Banking Tech Companies To Watch In 2010, published in December 2009, she enthused: “Bling Nation enables community banks to go head-to-head with banking’s big guns, thanks to a new bank service: contactless payments.”
Carney continued: “Bling’s Community Payments Service is a closed-loop payment network, meaning the bank and local merchant can bypass global payment processors like Visa and MasterCard.
Fewer processors in the payments supply chain also means banks and merchants can claim a bigger chunk of the transaction value.”
Taking a more measured view of Bling’s prospects than Carney is Speer & Associates’ Raza.
“It is interesting that Bling opted for small towns rather than tech-savvy cities such as Seattle,” Raza told EPI. “Clearly, as a result of its rollout, Bling has identified a consumer niche which is willing to use its technology, which is a good sign.”
With the exception of PayPal, Raza continued, the problem is US alternative payments service suppliers have a hard time being really successful due to Visa and MasterCard’s entrenched payments infrastructure.
“The common factor with all alternative payments firms is their claim that they can reduce merchants’ costs, and they can have a limited amount of success with this,” said Raza.
“But it will be hard for them to move from being niche players to mass-market adoption.”
Also, for a contactless payments company such as Bling Nation, the issue will be: who will pay for the contactless readers?
“When US banks such as Chase started rolling out contactless Visa and MasterCard cards, they quickly realised merchants are not keen to pay for contactless readers,” Raza said.
“It would be easier for Bling Nation to offer its service in an emerging market such as Latin America, where the payments infrastructure is not already entrenched.”