Bling Gives Banks a Bonus: Stronger Ties to Merchants

When The Fortunate Cup Coffee Cafe began accepting a new form of mobile payments last week, it also began to brew up more business for the bank that made it possible.

Three weeks ago, The Fortunate Cup installed readers from Bling Nation Ltd. at its counter and drive-through window, allowing consumers to make purchases with contactless payment stickers affixed to their phones.

Doreen Kamen, the cafe's owner, said that Bling's system, which sidesteps the national payment networks in favor of an ultralocal approach, gives her a more direct relationship with her bank than she had with just her company's checking account.

"Now the bank sees me in a different angle, as more of a merchant," Kamen said in an interview.

"They see the business I'm doing on more of a day-to-day basis between my deposits and my Bling account going through them. They get to know me, I'm a little more familiar to them should I need to contact them for anything down the road. It may be a small-business loan or anything along those lines."

That bank is Adirondack Trust Co. of Saratoga Springs, N.Y., which Bling expects to announce this week as its first client in the eastern U.S.

Bankers generally talk about mobile and contactless payments as a way to shift consumer behavior away from cash. Adirondack Trust is more interested in how the Bling system can help it generate more business from local merchants.

"It's a huge benefit to our local merchants. They're customers of ours, and as a community bank, when our customers prosper, so do we," said David Brown, Adirondack Trust's chief operating officer.

Aaron McPherson, a research manager for payments at IDC Financial Insights in Framingham, Mass., said this makes sense.

With Bling, the bank and the merchant form a bond "that's a lot more positive and a lot more cooperative," he said.

Bling tends to focus on small communities with a vibrant commercial downtown area, where many businesses are likely to have a relationship with a local bank. Saratoga Springs fits that description well, the payments company said, and there are other town like it.

Charles Herel, Bling's regional general manager for the East, said plenty of communities would fit the Bling profile. "New England is filled with wonderful communities with many vibrant downtown areas where the downtown area is the center of the community, and that's where people go."

Herel said Bling is also in talks with banks in similar towns near Boston and Nashville, though he would not say precisely where or identify the banks.

Bling operates a closed-loop debit network that links community banks with their local merchant clients. Consumers with accounts at a Bling bank can make purchases at participating retailers. Bling has said that because the transaction never leaves the community, its costs are low and that allows it to offer offer lower processing fees than the massive payments networks do.

Purchases are initiated with a contactless payment sticker; though they can be attached to almost anything, in practice most people put them on their phones.

(Payment stickers are often described as a bridge technology meant to allow consumers to make mobile point of sale payments before the payment capabilities are actually built into their phones.)

To further the idea that the payment tags are connected to phones, Bling sends people a confirmation text message after every transaction.

Kamen said these text alerts can serve as receipts, eliminating the need to print paper receipts. Another advantage when Bling users pair the stickers with their phones, she said, is that The Fortunate Cup's drive-through lane moves faster — motorists tend to keep their phones within easier reach than their wallets; many people talk on the phone while they wait in line, and can easily wave their phones near the payment terminal.

Kamen and her husband also own a Saratoga Springs financial planning company, Complete Corporate Planning Ltd., and have entertained the idea of using Bling to accept payments such as insurance premiums. Like The Fortunate Cup, Complete Corporate Planning also keeps its deposits with Adirondack already.

Rod Stambaugh, Bling's Western regional president, said his Palo Alto, Calif., start-up can increase business for local merchants. This could potentially increase deposits at their banks.

This came to light two months ago when the first Bling merchant, the Copper Kitchen in La Junta, Colo., noticed that despite Bling's promise of lower rates, the merchant was paying more in aggregate transaction fees to Bling than it was to the credit card companies.

After some examination, Bling and the Copper Kitchen determined the reason: though Bling's transaction fees were indeed less than half what the merchant was paying to accept standard credit and debit cards, Bling users were spending nearly 50% more per transaction.

Elsewhere in La Junta, where Bling works with The State Bank, "one large convenience store chain does not have Bling; everyone else does," Stambaugh said.

When that store tells consumers it does not accept Bling, "a lot of times the consumer will go out the door and cross the street to the convenience store that does."

Stambaugh said the chain store currently cannot deviate from the payment arrangements made by its corporate parent, but that Bling is making progress in enrolling the La Junta location in its network. (He wouldn't name the store.)

McPherson said Bling's strategy of sticking with community banks works well.

"A lot of the real innovation these days is actually coming at the community bank level," he said. "They're willing to put some real effort behind this and do the work to seed the market."

Adirondack's marketing strategy, which involves mailing the Bling stickers unsolicited to its existing customers, "is exactly what they need to do," McPherson said.

George Tubin, a senior research director at TowerGroup Inc. in Needham, Mass., said that Bling's early success stems not just from its community bank strategy but also its ability to determine which communities are most conducive to embracing its payment network.

"They focus on small communities where a couple of banks have a big share of the market," he said.

Though Bling says it is still much too young to deploy its payment system on a larger scale, Tubin said eventually those small communities could start to overlap. "Maybe once you build up enough closed communities, you can do it on a larger basis," Tubin said.