A proprietary debit network developed for small towns is helping a community bank win customers and increase deposits.

State Bank of La Junta, Colo., the first financial company to test Bling Nation Ltd.'s payment system, said the closed-loop network offers merchants low-cost processing and faster settlement while giving consumers competitive rewards.

"We're looking to grow our core deposits," said Brad Rose, the vice president of information technology and security at State Bank, the $97 million-asset main operating unit of the family-owned Ark Valley Bankshares Inc. "This product has brought in both consumer accounts and merchant accounts where we didn't have prior relationships."

Since it began offering the Palo Alto, Calif., processor's system late last month, 5% of the bank's 5,000 deposit accounts have signed up for it, Rose said in an interview Wednesday; that has resulted from word of mouth, since State Bank is not promoting the system.

Thirty-two nearby merchants have started accepting Bling Nation payments, including locally owned convenience stores and restaurants. Rose estimated that 60% to 70% of the merchants were new customers for State Bank.

Bling Nation's system uses the automated clearing house network and links merchants to a bank's core processing system. Consumers initiate payments using a BlingTag contactless payment sticker, which most users affix to a mobile phone.

The appeal to merchants is straightforward, Rose said — the ACH transactions are less expensive than debit payments routed through the major card networks, and settlement is faster, because the merchants and the bank are local. Bling Nation also keeps money in the community.

"Our area is being monetarily strained with the economy. We looked at this as an advantage with our merchants," Rose said. "That's what really supports this community; it's the small businesses."

Rachel Wallace, the marketing director at Wallace Oil Co., welcomed the new payment system.

Her company, which runs eight convenience stores in the region, competes against chains that have their own loyalty programs, she said. "We have a customer loyalty program, but it could be better. This was an opportunity to support a local bank, give a loyalty program to our customers and save money at the same time."

Wallace Oil maintains its primary commercial account with another bank, and it has accounts at four other, she said, but it "absolutely" plans to increase its business with State Bank.

La Junta, a farming community with a population of 8,000 in southeastern Colorado, is a prime test bed for Bling Nation's technology, the vendor said; State Bank has a strong position in the local market, and the area has a base of independent businesses.

"State Bank is an ideal bank for us," said Meyer Malka, a founder and co-chief executive of Bling Nation, which has built its business model on a "shop local-pay local" strategy. Like many community banks, "they are the most trusted party in the community."

Bling Nation works with its partner banks to identify potential merchant users. Even though firms such as Wal-Mart Stores Inc., Target Corp. and major grocery chains typically occupy top 10 positions in a bank's transaction list, the vendor targets the smaller but more numerous local merchants in the top 100, Malka said.

Rose said La Junta has a Super Wal-Mart store. However, the Bling Nation system is "not a product we would offer Wal-Mart," he said. "That would undercut our local merchants. Who buys gas? It's the local folks."

The system also offers faster settlement, he said. Conventional card transactions take two to three days to settle, but "we can literally do that overnight."

There are several built-in templates for merchant loyalty programs. A retailer can design a program so that a customer who buys 10 coffees gets the 11th free, or a customer who spends $50 gets a $5 coupon.

"There are a variety of templates merchants can choose from," Rose said. "If they don't have to buy a program that somebody wants to sell them, it's a great benefit to them."

State Bank is about to kick off a marketing campaign with the theme, "Let's Keep Local Commerce Local," he said. "Everybody in the community benefits."

The bank plans to send its customers mailers containing BlingTags, which they can activate at its downtown branch or through its online and telephone banking services, Rose said. "We're looking for a huge upswing in the number of people using those."