Bling Nation, the mobile payments and loyalty company, has shut down its service in a move it insists is only temporary.
Based in Palo Alto, Calif., and known for its colorful cellphone payment stickers, Bling says its service interruption is part of a bid to stay competitive by rolling out a revamped product later this year.
"We found it was easier to kind of pause and fix [our business model] than to try to tweak and market," said Matthew Murphy, a Bling Nation general manager who declined to discuss details of the company's plans.
Bling Nation launched its payments service with community banks in 2009 as a competitor to the dominant networks run by Visa Inc. and MasterCard Inc.
Bling Nation appeared to have chalked up early successes by focusing on community banks and merchants in their local regions, which experts say are largely underserved by the major card brands. The e-payment upstart's big misstep involved launching the loyalty program FanConnect last fall and requiring that banks and merchants on its network become part of it, Bling partners say.
"It was either you're on or you're off, and a lot of our merchants said, 'Okay, we're off,' " said Brad Rose, the vice president of information technology security at State Bank in La Junta, Colo. The bank, which had been Bling Nation's earliest bank partner, stopped issuing its stickers in March.
Bling Nation later made FanConnect optional, but Rose said by that time many of its merchants had dropped the service.
The Fortunate Cup Coffee Cafe in Saratoga Springs, N.Y., is a merchant that was turned off by FanConnect.
"They wanted to start charging for a loyalty type program [and] at that point it wasn't feasible to use them," said Doreen Kamen, Fortunate Cup's owner. "I didn't need to pay them … for that because I already had my own loyalty program."
Aaron McPherson, a practice director at IDC Financial Insights in Framingham, Mass., said he gives Bling Nation credit for focusing its sales efforts on community banks but that he was also skeptical of its long-term prospects from the outset. Bling Nation's strategy "seemed like exactly the sort of thing that would never work," McPherson said.
The crux of Bling Nation's strategy was to win merchant acceptance by charging lower fees than traditional debit and credit networks. It partnered with banks, which issued contactless stickers to customers. Bank customers then attached the stickers to their phones or other mobile devices and tapped them against a dedicated retail terminal to make a payment.
Consumers were encouraged to adopt the technology by the prospect of earning discounts as they drew funds directly from their checking accounts.
Bling Nation's FanConnect service was added to allow consumers to automatically post Facebook messages about their Bling Nation purchases that included merchant coupons others could obtain by clicking on their posts.
At its peak, Bling Nation had between 15 and 20 banks issuing stickers and about 1,000 merchants nationwide using its service, Murphy said. It closed down the system about one month ago, and much of Bling Nation's sales team has left the company, its bank partners say.
Executives at several banks said that they liked Bling Nation's business strategy but its service ultimately suffered from a lack of merchant adoption and consumers' unwillingness to switch from bank-issued debit cards. Bankers were also turned off by what some perceived as Bling Nation's turn away from a hyperlocal strategy by partnering with eBay Inc.'s PayPal subsidiary and rolling out FanConnect.