Questions remain about the potential for wide-scale adoption of contactless-payment stickers consumers can affix to their mobile phones and use to pay for purchases at the point of sale. However, a start-up transaction processor offering an alternative payments network is centering part of its business model on the technology.

 Bling Nation Ltd. last month concluded the beta phase of a contactless-sticker test, and the results encouraged the Palo Alto, Calif.-based company.

Bling enlisted 32 employees from the popular social networking Web site Facebook to test the contactless tags at participating merchants in downtown Palo Alto, where Facebook also is located. Bling surveyed the beta group after a 10-day test and discovered all the participants found the activation process and first transaction easy to conduct.

Users activate the tag by calling a phone number and entering the identification number on the bottom of the tag. Nearly all the users (96%) said they would continue to use the tag if given the chance.

In November, Bling told ATM&Debit News sister publication American Banker its payment network would help community banks earn more revenue on local debit purchases. The banks would act as the acquirer and encourage local merchants to use the network; Bling would operate the network and process payments.

Though some analysts question whether the concept has legs, Dennis Moroney, research director of bankcards at Needham, Mass.-based TowerGroup, an independent research firm owned by MasterCard Advisors, believes the card networks and large transaction processors should take note of Bling's product. Bling is showing community banks, credit unions and merchants a way to operate outside the traditional payment and transaction networks, he says.

Several transaction processors declined to comment about Bling's intentions when contacted by ATM&Debit News. Visa Inc. says in a statement it welcomes emerging forms of payment and that they are evidence of a rapidly evolving and competitive payments industry. "We believe we offer consumers and merchants a strong and long-established value proposition," the statement says. MasterCard Worldwide also did not respond to requests for comment.

Bling has an agreement with a community bank to sell the service to merchant clients, Meyer Malka, Bling co-CEO, tells ATM&Debit News. An official announcement regarding that agreement will occur within the next month. "It's an ideal community bank that has a high market share," Malka says.

For the pilot, Bling preloaded each tag with $50 and included loyalty points to pay for goods and services. "We had both on the tag because we wanted to know what the experience was like for the user and merchant using both forms of payment," Malka says.

Bling can program the tag to pay with cash or points. When Bling's back-end system receives a request for authorization on a payment from the terminal reader, it checks the validity of the "keys" in the chip and then verifies if the account link to the tag has enough points or coupons to be used as payment, Malka says. Some of the user comments from the test were even more encouraging, he says. One user said he never realized how boring it was to pay with plastic until he tried the contactless tag. Another commented how he missed the luxury of receiving a confirmation text message on his mobile phone after every transaction when he returned to using payment cards to shop.

The text message, received immediately after a purchase, notes what the item cost, how much was paid, the merchant location and the updated balance on the tag.
Malka compares the initial experience of using the tag with the first time one notices how easy it is to read and send e-mails using a Blackberry or iPhone.
"It's one of those things that you don't realize that you need, and once you test it and you have it and they take it away, you feel like you've lost something," Malka says.

But will other consumers feel the same way? Indeed, contactless stickers and cards are not new to the payments space, though some view the stickers as a bridge to Near Field Communication. NFC is a short-range, two-way communication wireless technology that enables consumers to use mobile phones to make contactless payments and receive and use coupons, tickets and other services.

Last month, MasterCard and Visa each announced the rollout of contactless' payment stickers consumers could attach to their mobile phones.
Consumers, however, may find the idea of placing a sticker on the back of a Blackberry or iPhone unappealing, says Nick Holland, a senior analyst at the research and advisory firm Aite Group LLC of Boston. "It's a low-tech entry into the market," he says. "[Companies] should forgo this and move into NFC as much as possible."

Another obstacle is merchant acceptance. To accept contactless payments, merchants need a reader embedded in or attached to their POS card terminal.
Bling believes if there is a significant incentive to accept the contactless tag, then why not add an additional reader?

"In today's environment, you're expecting merchants to accept contactless, but there is no real benefit [for the merchant] outside of speed [of the transaction]," Malka says. He also argues speed is only a factor at such businesses such as McDonald's USA restaurants and 7-Eleven Inc. convenience stores.

Holland suggests a contactless-specific interchange rate is needed to entice merchant acceptance.

Merchants that participated in the Bling pilot included local restaurants and retailers, including a dry cleaner. The smallest merchant is paying $8,000 a month in transaction fees, according to Malka. "It's their single largest cost not related to merchandise," he says.

Bling expects to charge merchants a transaction fee of 1.5% of the sale. Bling will keep 0.3%, and the rest would go to the bank. About 0.25% will cover bank costs, leaving 0.95% as profit for the bank.

Malka previously said Bling's fees compare favorably with established debit networks. He says the 3% fee paid by small and medium-sized merchants includes both the interchange and fixed amount per transaction.

"Usually you see a lower percentage, but when you divide the monthly fixed fee and the fixed fee per transaction, they add to least 300 basis points per transaction," Malka says.

The breakdown Malka has seen is 1.65% for the acquiring bank and merchant acquirer and 1.35% for gross interchange to the issuing bank. Of the 1.35% received by the issuing bank, 0.76% goes to the bank processor, 0.25% is for bank costs related to debit issuing, 0.11% for Visa and MasterCard fees, and 0.23% is left as profit for the bank. Merchants should be attracted to the cheaper rates because of the economy, TowerGroup's Moroney says.

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