One of the good things about having a really odd company name is that people do remember it. We mostly heard skeptical laughs when first emerged from stealth. But lately we’ve been getting more questions…. I spoke recently to co-CEO and founder Wences Casares.
Wences and co-CEO Meyer Malka have an interesting background, having worked together in a series of successful financial services and telecom investments in Latin America. They’ve taken venture financing from Lightspeed Venture Partners, added former Bank of America Vice-Chairman Luke Helms to their board of directors and have pulled together some impressive advisors – including John Reed (former CEO of Citicorp), Carl Pascarella (former CEO of Visa USA) and Jeff Stiefler (former President of American Express).
What They Do
Bling has their eyes firmly on the prize – point of sale transactions and the huge payments industry revenues associated with that. Their approach, however, is quite unique.
Bling is creating a series of community-based local payments networks. The mobile phone is a piece of the puzzle, but not the defining one – instead, think of the mobile form factor as an enabler of the core payment service.
Bling targets a small community which has a decent population and financial asset size, and which is served primarily by local community banks. They sign up one or more of the banks, and an assortment of frequently-visited local merchants (movies, pizza, dry cleaners…). The banks provide customers with a payment sticker (co-branded with Bling and the bank’s brand) and instructions on how to enroll their phone in the service.
The merchants are given a stand-alone device (called a “Blinger”) for payments acceptance. At time of purchase, the consumer taps the Blinger, the transaction is processed and the consumer and merchant both receive confirmation of payment – the consumer to their mobile phone and the merchant on their Blinger. Bling also supports a variety of merchant rewards, loyalty, discount, and couponing programs, all tied to mobile phone messaging.
Sounds like any debit card or open loop network-branded prepaid card, right? Wrong! There is no network brand on the sticker or the Blinger. Transactions are authorized by the consumer’s bank – Bling looks like a foreign ATM to the bank. Settlement in batch is done at night, between Bling and the banks, as a private, not network, settlement. The merchant doesn’t have to submit any clearing transactions – as long as they got the Blinger confirmation, they know their account will be credited that day.
Bling is finding that the operational management of this is pretty straight forward – and, significantly, that the processors which are serving many of their target banks are willing and able partners.
The pitch to the consumer is “coolness” and convenience – and the ability to access merchant rewards programs. The pitch to merchants is primarily cost – transactions are about 50% cheaper than traditional card acceptance.
But a secondary, and very strong, part of the pitch is the ability to deliver rewards based on things like the frequency of visits to a merchant – which the consumers can redeem instantly as they pay. Neither the merchant nor the consumer needs to keep track of anything – and, says Wences, “merchants love that.”
The pitch to the bank is the opportunity to get local merchant POS business – a business that many community banks have given up on as much of that business has migrated to large, national acquirers. When compared to a transaction where the consumer uses the bank’s own traditional network-branded debit card, the bank’s revenue can be three to five times higher.
This higher revenue is made possible because the middleman – Bling in this case – is taking significantly less from the merchant discount fee than is taken, in aggregate, by the many players in the traditional bank card value chain. As the community network grows, a bank can also earn money if their consumer shops at a merchant served by another Bling partner bank, but this is not a significant piece of the economics currently.
For both the bank and merchant, the “stay local” aspect of Bling is highly attractive. In fact, Wences said they were surprised by how strongly the “local” aspect of the pitch resonated with local merchants. Frankly, I’m not at all surprised – in my small community there is a terrific energy around several community programs promoting support of local merchants – but my community’s banking needs are served primarily by local branches of national banks. Bling is staying away from those communities – for now. I asked Wences how they were dealing with the local branches of big banks in the communities they are serving. “Right now,” he said, “we’re not approaching them.”
So just how big an opportunity is this? It often amazes people from outside our industry – or outside our country – that the U.S. banking market is as unconcentrated as it is.
Our estimates show that the “big three” banks – Bank of America, Chase, and Wells Fargo, even after recent acquisitions, account for only about 25% of bank deposits (consumer and commercial, bank and credit union) and only about 35% of debit card transactions. There are over 8,000 credit unions and over 5,000 community banks out there, serving local retail customers. Bling is betting that a lot of these smaller institutions will be interested in a new payment service that gives them a shot at playing a new role in their community’s merchant business.
Common sense tells us there is a lot of volume in local purchases. I remember seeing statistics years ago about what percentage of phone calls were made locally – I don’t remember the number, of course – but it was very high! If anyone has seen an analysis of what percentage of POS transactions are done in the cardholder’s home town, I’d love to know about it – I’m sure it’s very high. Then just factor in the percent of transactions done in small communities – certainly seems that it is a big enough number for Bling to pursue!
Bling clearly has its work cut out. Just pursuing the many small banks and communities that fit its profile will take time and resources. They are active in four communities right now, and expect to be in ten by year-end 2009.
At Glenbrook, we’re always interested in studying just how these new payments propositions are likely to evolve in the future. One development, of course, might be the move to NFC-based contactless payments built-in to the mobile phone – rather than the use of contactless stickers. Wences was pretty philosophical about that. “We are not,” he said, “waiting for that to happen….I expect non-financial applications will lead the way for NFC”.
Longer term, it is extremely interesting to note that while Bling is taking a community-by-community approach in its initial market development, they are also building a larger infrastructure. If my community bank issues me a Bling sticker and I travel to your community…. that sticker works when presented to the Blinger of your local merchant! A new network is born?