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Pay by phone: Hands-on with Bling Nation's PayPal patch

We've been hearing quite a bit about companies that use RFID chips to turn your phone into the equivalent of a wallet. Now we got the chance to try it in the wild.

Bling Nation logo

It's not every day a company gives you $20 worth of free cash to spend as you choose and let you run wild. And it's not every day you pay for your lunch with a wave of your cell phone. This is exactly what Bling Nation is doing to promote its new mobile payment product, which ties into your PayPal account.

We slapped a BlingTag--a yellow and white adhesive square--onto the back of several mobile phones and took the nascent payment solution for a field test at three freshly installed partner retailers in Bling Nation's incubation headquarters of Palo Alto, CA.

The BlingTag, as the sticker is called, uses NFC, or near field communication, a technology that relies on an RFID chip nestled within the adhesive to authenticate transactions made between your cell phone and the BlingNation payment console. NFC is a short-wave radio communications technology that's not unlike Bluetooth in concept. However, it has a much tighter range--up to 10 centimeters (about 4 inches) for NFC versus up to 30 meters (not quite 100 feet) for Bluetooth.

To make a payment, the cashier types in your total and your phone number. You tap (or hover) the BlingTag sticker over the sensor and almost immediately receive a text message with an authorizing pin that the cashier then types into the console. The machine spits out a receipt and you receive a second text message verifying your purchase. The dollar amount, meanwhile, is deducted from your paired PayPal account. If the merchant has signed onto Bling Nation's loyalty program, they could opt to credit you points that you could rack up, in lieu of using a punch card, to eventually purchase more of their product.

As with debit card payments made through a supermarket's card-reading terminal, there's no ID involved, just a pin-based authentication. In Bling Nation's case, the pin code isn't a secret, and it's constantly changing.

The entire process took no longer than paying by credit card, although we did experience a false start that required us to abandon our first BlingTag and begin again because Bling Nation is currently incompatible with Google Voice numbers.

What about security?

Bling Nation's BlingTag in Palo Alto, CA
Paying for product with a hover or tap at a Bling Nation partner store in Palo Alto, CA. CNET

There's always risk of fraud or theft involved when it comes to money changing hands. It's the nature of the beast, and one that merchants, banks, credit card companies, and e-commerce verifiers spend billions on in operating costs to forestall.

Proponents of NFC technology  point out the following benefits. First, the NFC radio signals that bounce the short distance between the payment console and the RFID chip, like the one embedded in the Bling Tag sticker, are encrypted. Second, the codes are dynamic, in contrast to the static security codes you find baked into plastic credit and debit cards.

Bling Nation takes other precautions as well, adding a pin that you may be required to produce for volume purchases. In addition, Bling Nation says that neither its BlingTag nor payment console store consumer information. As a final layer of protection, removing the BlingTag sticker damages the radio frequency antenna embedded within, which should make the tag unusable from that point on. (This could cause some complication for adopters that switch phones, of course.)

We asked several experts in the mobile payment field to evaluate the risk of using NFC technology. The results were unanimous.  "There are perceived security concerns," Karen Webster, a consultant at Market Platform Dynamics Consultancy, stressed in an interview with CNET. "Really, it's the same as carrying your wallet."

"This doesn't seem more or less secure than anything else," agreed Russ Jones, a payments industry consultant with Glenbrook Partners. "You could lose your card or phone, or someone could swipe them.

The perception of risk was real enough among users in Bling Nation's tests for the company's co-founder and CEO, Wences Casares, to have the team reduce the RFID range of the company's payment consoles so that phones would have to get much closer to kick off a transaction. The company also encourages users to tap the phone to the console rather than wave it over the payment terminal (although we found that while you don't need to make physical contact, you do need to hover the tag just above the sensor.)

The rise of mobile payments

Momentum is growing on the mobile payments front in the U.S. in a variety of ways. PayPal has made inroads  with peer-to-peer (P2P) payment transfers in mobile applications, and by way of payment partnerships with companies like Bling Nation.

AT&T and Verizon have also made headlines for possibly collaborating on a similar project, and both Visa and MasterCard have independently spent research and development dollars creating mobile payment solutions of one stripe or another.

Square is another entrant in the varied mobile payment space that uses an attachment to turn your iPhone or Android phone into a terminal for accepting credit card payments. Carrier billing options, where users can currently add the cost of software applications and possibly one day other products to their monthly cell phone bills, are also on the verge of becoming widespread in terms of mobile app stores (see BlackBerry OS 6, for example).

It's clear that mobile payments are a big business. To put it in perspective, Visa and MasterCard handled $2.45 trillion last year on credit cards issued to U.S. consumers, according to Bloomberg's reading of a Nilson industry report. That accounts for 82 percent of expenses. In addition, Visa's annual operating income topped out at $3.54 billion last year, according to Bloomberg, and MasterCard's comes in at $2.27 billion.

It's no surprise that the promise of taking a cut of that coin has inspired start-ups like Bling Nation. Right now Bling Nation is in its pilot program, and has installed some very lightly-advertised kiosks, promotional BlingTags, and "Blinger" payment consoles into two dozen retailers in downtown Palo Alto, plus around the PayPal campus. There have also been isolated deployments in Colorado and New York. While CEO Casares hopes to spread his "Bling" to Texas, Massachusetts, and other locations in the San Francisco Bay Area, he told CNET that the company is exploring options for moving into closed economic ecosystems like universities and corporate campuses.

At any rate, Bling Nation has a bunch of cold, hard cash of the nonvirtual variety to work with. The company has acquired over $33 million in investment contributions to date, and that's after BlingNation secured its most recent round of financing, Series B, in October 2009.

We're not sure how the company materially received those investor funds, but we're guessing it wasn't with a PayPal transfer or a cell phone tap.