Cimbal Inc. is bypassing any future business models centered on Near Field Communication payments with a mobile-phone application that mimics NFC functionality but without the use of an embedded chip in the handset.

The San Francisco-based company on Aug. 31 launched the application, which uses a two-dimensional barcode that enables consumers to complete person-to-person payments, point-of-sale transactions and online purchases. The application’s software turns a smart phone’s camera into a scanner that reads barcodes displayed on another phone or on a computer screen.

Cimbal developed the application because it believes a hardware-based NFC payment scheme fails to solve some “major problems” the technology could cause in the marketplace. Such problems center mostly on the chip costs to handset manufacturers and the cost to merchants to upgrade their terminals to accommodate contactless transactions, says Christopher Boone, company president and CEO.

The current NFC model also fails to properly address the user experience for online, point-of-sale and P2P transactions, Boone says.

Consumers using the application first must register online and link their Cimbal account to a valid bank account. At the moment, the service only accommodates P2P payments involving Cimbal users. Cimbal will activate other payment option when it announces merchant partners.

The application is available for Apple Inc.’s iPhone and “in the near future” will be available for Google Inc.-powered phones and Research in Motion Ltd.’s Blackberry devices.

To initiate a P2P payment, the seller or requester of funds creates a payment request on his phone or online. Cimbal’s system then produces a single-use barcode on the phone or computer screen that does not include transaction details or other sensitive data.

The payer launches Cimbal on his mobile phone, enters a PIN, and scans the barcode on the recipient’s phone or computer screen. Cimbal authenticates both parties and prompts them to confirm each other’s identities. The system authorizes available funds and clears the transaction within seconds.

Brick-and-mortar transactions would work in much the same way. A barcode would appear on a screen or paper receipt, and the buyer would scan the barcode and enters a PIN to complete the transaction. For online purchases, the barcode would appear on the seller’s screen during the checkout process.

“We wanted to develop an application that is universal enough” to be used and viable in different payment environments, Boone says.

Barcode technology is just starting to make its way into the mobile-payments environment. Both Starbucks Corp. and Target Corp. are using barcodes for closed-loop gift card payments (see story). 

Beth Robertson, the director of payments research at Javelin Strategy and Research in Pleasanton, Calif., believes 2-D barcodes are a viable option to traditional NFC technology, which also supports the downloading of information to phones’ NFC chips, such as merchant reward points. Cimbal plans to support coupons, merchant loyalty programs and location-based offers.

The company, however, likely will have trouble gaining market share in what already is a crowded alternative-payments environment, especially online, Robertson adds.

“If name-brand merchants get involved with this, that will help consumer adoption,” Robertson says.

Cimbal is testing the barcode technology with at least two undisclosed merchants, Boone reveals. He would not say who is processing the transactions.

Cimbal plans to offer merchants a transaction fee that would equate to about half or less than what they pay for typical credit or debit card transactions.

“We’ve designed this system to be extremely merchant-friendly,” Boone says. “The benefit of that approach is that we’re having great dialogue about different [payment acceptance] with merchants.”

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