Network challenger uses handsets not cards, focuses on an underserved niche

Summary

Bling Nation is launching a new retail electronic payment system – a daunting challenge in a well served and intensely competitive market where scale and network effects matter enormously. However its targeted and novel approach may give it a fighting chance. Bling Nation uses mobile phone handsets rather than mag stripe cards as a payment account key and is focusing on underserved small community banks and merchants.



Analysis

Bling Nation just raised $20 million from London-based Balderton Capital (formerly Benchmark Europe). Previously it had raised $13 million from Lightspeed Venture Partners, Meck Ltd and CampVentures. However $33 million isn’t even table stakes to take on established general-purpose retail card payment networks directly.



Bling Nation is an open, two-sided, general-purpose retail payment system serving consumers and merchants through FI licensees, like Visa (V), MasterCard, Discover (DFS) and First Data’s Star.



But, Bling Nation’s approach is different and indeed novel in important respects.



It uses mobile phones with an RFID sticker rather than a plastic mag stripe card to carry payment account keys, enabling consumers to use handsets to pay at the point of sale. The mobile phone is a plausible alternative payment device. It’s gained traction abroad, particularly in emerging markets where more people have cell phones than payment card or retail-banking relationships. The enormous challenge in the US is how to supplant or supplement ubiquitous and entrenched magnetic-stripe card infrastructure and merchant and consumer habits.



Bling Nation is targeting small community banks long underserved by Visa, MasterCard, Amex and Discover. Its licensees provide consumers with Bling debit and merchants with acceptance, treating all transactions as on-us.



Similar to Revolution Money and Tempo, Bling’s model relies on local merchants ponying up rewards to entice consumer use – an approach used to great effect by larger retailers in private label and cobranded programs supported by Alliance Data Systems (ADS), GE Consumer Finance, Citi, and HSBC.



General-purpose payment products provide small merchants with guaranteed and convenient payment and their customers often with revolving credit, but little in the way of customized marketing support, and unlike large retailers they lack scale and resources to support their own retail-card programs.



In the US Visa, MasterCard, Amex, Discover, Star et al all have critical mass on both sides of the network: spend and acceptance. A broad frontal assault, such as Revolution Money in the U.S. and PayFair and EAPS in Europe are undertaking, on established general-purpose card payment networks would be daunting, indeed well nigh impossible.



However, addressing an underserved niche(s) with a compelling value proposition has proved more viable.



EBay’s PayPal achieved initial traction providing a convenient and secure payment solution for the proprietary e-auction market, which was inadequately served by MasterCard and Visa. It leveraged the subscriber base it built there to successfully compete in the broader retail e-commerce market. And at some point, PayPal is likely to tackle the physical pos.



Specialists Neteller, Click & Buy and Wirecard’s Click & Pay built share with high-priced payment products serving niche markets such as gambling, music downloads, porn, et al.



Nonetheless, Bling Nation faces significant, perhaps ultimately insurmountable, challenges.



The US retail payment market is the most competitive in the world. Americans have more payments choice than consumers virtually anywhere else on the planet. Bling Nation competes with networks with near universal acceptance, and rich issuer and cardholder economics.



To displace an incumbent a new payment system needs to be compellingly better in some respect. It may be easier to build islands of network critical mass in small communities, but nonetheless it will be difficult. In the event, Bling Nation’s second major hurdle will be aggregating enough of them to make it all meaningful.