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A year into the slow rollout of Bling Nation’s mobile-payment service in the United States, and one thing is clear: There’s pent-up demand for shaking up the status quo and poking a symbolic finger in the eye of entrenched interests.

For merchants dissatisfied with fees to accept debit and credit cards, small community banks eager to play the “local” card and consumers looking for quicker and more novel ways to pay, Bling’s contactless-mobile payment scheme has been a welcome alternative.

Less certain at this stage, however, is whether Bling or any alternative payment system will be able to successfully take on the giant incumbents, Visa Inc. and MasterCard Worldwide, and their big banking partners.

"History shows us pretty clearly that odds are low that Bling will succeed in its current state," Red Gillen, senior analyst for U.S.-based Celent research told NFC Times. "There have been no truly successful brick-and-mortar payment schemes since Discover (Financial Services)."

Signing up banks to issue the contactless BlingTags and merchants to accept them is a "long, hard slog," noted Gillen. Then there is the challenge of getting consumers to give up their plastic bank cards and use contactless stickers, a technology most of them are unfamiliar with.

At present, Bling Nation has recruited fewer than 20 community banks, in Colorado, New York, Texas and a few other states, according to announcements. Roughly 1,000 merchants accept Bling in a scattering of communities nationwide. The company, which to date has raised at least $33.3 million in venture capital, pays for the separate terminals as a special offer through the end of the year.

PayPal Tie-In Still at Trial Stage
Bling’s agreement with eBay’s PayPal unit to enable users to tap BlingTags to pay for merchandise in stores funded by their PayPal accounts will help on the issuing side, said Gillen. 

PayPal’s ambition is to expand its popular online payment service to the physical point of sale and the tie-in with Bling could encourage more merchants to accept Bling, said Gillen, who considers the Bling relationship with PayPal promising. But to expand with PayPal, Bling would still have to sign up the merchants and roll out terminals widely. And as one PayPal source told NFC Times, Bling is not the only new payments technology PayPal is working with. PayPal is mainly just allowing the Bling network to tie into its system through its PayPal X, open application programming interface, or API. It remains to be seen how much further the partnership will go.

PayPal and Bling launched a trial this summer, which includes 2,000 PayPal employees, who can tap to pay at the company’s San Jose, Calif., headquarters campus and at about 50 participating merchants in nearby Palo Alto. Other PayPal users also can join in the trial.

But with any rollout, PayPal would be taking a cut of the merchant fees from Bling, and it’s unclear how this would affect one of Bling’s key selling points for merchants – lower fees compared with interchange on Visa- and MasterCard-branded card transactions.

Early Local Struggles
Bling’s merchant fees can be 50% less than what merchants pay based on card interchange, Bling marketing director Daria Paul Ilgen, told NFC Times. And Bling's fees will still be lower than debit card fees even if the latter drop, as expected, as a result of recent financial reform legislation by the U.S. Congress, he predicted.

Ilgen declined, however, to say how PayPal taking a slice of the Bling transaction revenue might affect Bling’s fees for merchants. But the company has indicated the fees for PayPal transactions using Bling would still come in lower than fees on banking card transactions.

In any case, building business among community banks and merchants will continue to be a focus of Bling Nation, Ilgen said.

But the local approach has not been without its early problems.

Earl Bradley, chief executive officer of First Federal Savings Bank, a Clarksville, Tenn., financial institution that in June began issuing individuals BlingTags for their phones and merchants the Blinger readers that enable the contactless transactions, said he’s lately had to slow the pace of merchant sign-ups to concentrate on getting existing merchants fully acquainted with how Bling works.

"This is new technology that involves a different type of point-of-sale device that has various plug-ins for a charger, phone and computer, and we’ve seen some problems with folks trying to put a square peg in a round hole and failing to keep devices fully charged up," Bradley told NFC Times. "We maybe went out too many, too fast, so we said, let’s slow it down and do it right, and also make sure we’re targeting merchants who really want to do this."

Rather than actively working to get more merchants involved, Bradley said his emphasis now is helping those who’ve collectively installed some 200 Bling readers across town to ratchet up their Bling payment volume.

"They need to have time to get in a habit of asking customers if they want to use Bling to pay, and get employees to use Bling themselves at other locations that take Bling," he said. "We’re going back to them and making sure they fully understand this and embrace the technology and the importance of regularly asking customers, "Would you like to Bling this transaction?"

Meanwhile, in La Junta, Colo., the bank that was the first in the country to sign on with Bling Nation in June 2009 has learned this so-called “revolutionary” payment technology doesn’t necessarily sell itself. Brad Rose, the bank’s vice president of information technology, told NFC Times he thought being a Bling early adopter would immediately translate to a rush of new accounts. It didn’t quite turn out that way.

"When we launched it, I thought we’d basically take more market share because we were actively helping to support local merchants and it was new technology," Rose said. "But for the first two months it was slow. Once we realized accounts wouldn’t necessarily just grow because of it, we started having tellers sell it to existing customers. So I’m disappointed from the standpoint of new business generation, but this has helped us develop our profile and increase our name recognition. We’ve learned that technology like this in small towns is still a hard sell."

As of July, Rose said the bank had 570 active BlingTags in circulation. The majority of them were issued to customers who had debit cards, a group that numbers around 1,000 and seems more willing to try Bling than those who only use checks. Tag use, he said, has been growing about 10% a month recently, hitting 1,400 transactions in July. But he projects monthly growth will soon level off to between 2% and 3%.

And, while some merchants who’ve signed on to take Bling say they love its comparatively lower fees and faster merchant account crediting, they note some technical glitches and the monumental challenge of getting to a critical mass of Bling adopters vital to its success.

David Greene, owner of livegreene, a retailer of environmentally friendly products in Palo Alto, told NFC Times customers with some prepaid cell phone plans haven’t been able to receive text confirmation messages from Bling. Greene is one of the roughly 50 Palo Alto merchants that recently began participating in the Bling/PayPal trial.

Although he calls the Bling concept "awesome" and a great vehicle for allowing people "pissed off" at traditional banks and card payment schemes to fight back, Greene said mobile payment platforms like Bling’s face formidable obstacles.

"A big limitation will be getting into national retailers," he said. “Small guys like me can make adjustments on the fly with our POS systems, but the bigger ones will require a lot of programming and approvals from the front office."

Early Adopters See Promise of Bling
Still, despite some dashed expectations, banks and merchants that make up the early adopters of the Bling system are generally impressed by how it works and its potential for their businesses and communities. Provided it can get off the ground, many say a mobile-payment system that promises lower fees, speedier transactions, enhanced security and quicker access to funds–things they’ve already witnessed on a small scale–can be a game-changer.

For merchants, the clearest benefit has come in the form of the bottom line. Whereas card transactions can take three to five days to clear, Bling contactless transactions result in funds being credited to accounts quickly, often overnight. Plus, Bling’s fee structure, which translates into rates well below the roughly 3% banks charge credit card users based on interchange, leave more money in merchants’ pockets. Debit card fees are usually less. But merchants say they are still saving.

Among the reasons for the faster clearing time and lower fees is that all transactions are handled through Bling’s network and both the merchant and consumer involved in any given transaction have to have an account at a Bling participating bank in the community.

"With any purchase that’s over about $23, we’re instantly saving using Bling instead of plastic," said Rachel Wallace, owner of Wallace Oil Co., a La Junta, Colo.-based operator of gas marts and other businesses, which was an early Bling adopter when The State Bank introduced it. "For small businesses, interchange fees are getting harder to take. Plus, we recently had to spend $16,000 per location to install new equipment to comply with new Payment Card Industry Data Security rules (Standard)."

One Clarksville, Tenn., merchant accepting Bling, Conrad Edington, owner of a furniture store, said he likes the idea of getting his account credited more quickly, and in full at one time. Whereas a card payment of, say, $5,000 is split into two equal charges, a $5,000 Bling charge is a single transaction that lands in his account in a lump sum. As for his transaction fees, Edington said they range between $3,000 and $5,000 monthly. If those were all Bling payments, the fee would be closer to $1,000, he said. 

Building Bling Loyalty
At the same time they’re saving money, many Bling merchants also are enjoying a business boost fueled partly by loyalty rewards programs used to boost both Bling participation and usage.

In targeting small businesses that can more readily adopt and integrate Bling than large chain operations, Bling and its financial institution partners see an opportunity to not only increase the total volume of Bling transactions, but also to help local merchants grab a bigger slice of the local consumer dollar.

The points programs, funded jointly by merchants and banks and allowing instant redemption at participating merchants, have been integral to enticing consumers to use Bling wherever and whenever they can. And for now, that means the small, locally owned business.

"We started with a program where if you spend $200 using Bling you get a $5 reward, so that’s a chance for customers to earn up to 5% per transaction instantly," Wallace told NFC Times. "We were looking at different card loyalty programs when Bling came along. When they described their entire program I was on board in less than two minutes."

For the handful of U.S. banks that have taken up with Bling so far, the program is seen as a good down payment on an emerging technology. While Bling transactions account for a miniscule fraction of their total customer account debits, participating banks look ahead to a time when mobile payments might indeed offer a challenge to the card model. But, of course, Visa and MasterCard have their own mobile-payment initiatives, using passive stickers and other contactless technologies, such as contactless microSD cards and, later, NFC phones.

"We’re very much in the early stages like Visa and MasterCard had to go through at first," The State Bank’s Rose told NFC Times. "But this technology, with its use of a secure tag on a phone, offers some real security benefits over both cash and cards, which are susceptible to counterfeiting and stolen PINs. Plus, the opportunity to eliminate third parties and other middlemen from transactions makes for a much tighter payment circle, and that helps merchants save money."

Bradley said he sees First Federal benefiting by being an early adopter and helping its all-important small business base stay plugged in to emerging-payments technology. Despite dashing out of the starting gate too fast, perhaps, the bank has been heartened by the fact that Bling’s mobile payments technology works. That bodes well for the future, he said.

"There have been some isolated issues with phone reception at the point of sale, but the technology is being embraced. This is the real thing," he said.

But he acknowledged that getting a critical mass of merchants will be the key to success of Bling or any other mobile payment technology. That will likely mean getting larger retailers on board, a mission he’s currently pursuing.

"I think they’ll want to be there because of the potential for savings," he said. "We have one local merchant that’s paying over $1 million annually in interchange fees, and they’ve expressed some interest. The Clarksville (Tenn.) area has a lot of national and regional companies, and we’re in the preliminary stages of talking with a few of them about Bling."

Indeed, such conversations will be essential for Bling or any other new mobile payments system to ultimately succeed. Merchants large and small will have to buy in, navigating the politics of the electronic payments system now dominated by cards.

But the process of bringing merchants with large national or regional footprints into the Bling network is vital to the success of the scheme, and that could be hastened by Bling’s work with PayPal and its pool of millions of potential users, say observers.

While not a large merchant, Wallace, the La Junta gas mart owner, said she could see the potential benefit of integrating Bling with PayPal. Though PayPal accounts wouldn’t necessarily be linked to any local bank, Wallace said bringing PayPal users into the system would likely serve to boost Bling transaction volumes.

And that plus Bling Nation's separate local approach could help contactless-mobile payment in general gain a foothold, said Bradley of the First Federal Savings Bank.

"At this point, we see Bling as just another channel in the payment system, but one that does seem to offer a very safe, convenient and fast way to complete a transaction," he said. "It’s going to take time to get merchants and consumers to adapt to it, but I believe that it has a good chance of emerging as the preferred way for people to pay." NT

Dan Balaban contributed to this report.