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The prospect of ubiquitous merchant acceptance and the ability to carry just one card in lieu of several was too much of a promise, alleges a lawsuit filed last week against Coin Inc., a startup offering a universal card service.
Filed on behalf of two consumers who each purchased a Coin device, the lawsuit alleges that Coin misrepresented the level of merchant acceptance and that its promise of not having to carry the original cards could not be kept.
The prospect of carrying all payment cards in a single card-like device, something Coin markets, turned out to be something it couldn’t deliver, says Karl Kronenberger, managing partner at Kronenberger Rosenfeld LLP, a San Francisco-based law firm that filed the lawsuit for the plaintiffs.
Coin executives did not respond to Digital Transactions News inquiries. Coin is based in San Francisco.
Coin’s premise is that consumers can use its device to load up to eight credit or debit cards—even gift, loyalty, or membership cards—as long as they have a magnetic stripe. Users select which card to use by pressing a button on the card. A display shows the last four digits of the chosen card’s account number, its expiration date, and its card-verification value. Then, the Coin card can be swiped through a magnetic-stripe reader. The latest version of the device, released in August, also contains a near-field communication (NFC) chip for contactless payments.
Among the allegations in the suit, which was filed in the U.S. District Court for the Northern District of California, is that, despite a promise of being able to use one card to replace multiple cards, the Coin device failed to work at point-of-sale terminals anywhere from 15% to 40% of the time.
The reason, the complaint states, is that the device only stored and transmitted track 2 data. Some POS terminals require track 1 data, which includes the primary account number, accountholder’s name, expiration date, and a service code, along with track 2, which contains no letters. “As a result, the Coin device failed to work with merchants and POS terminals that required the transmission of the cardholder’s name in addition to the card number,” the lawsuit says.
This failure to work with many merchant POS terminals constitutes misrepresentation, the lawsuit alleges.
Coin, in the frequently-asked-questions page on its Web site, acknowledges that approximately 85% of merchants require only track 2 data. It advises merchants to contact their processors or acquirers to eliminate the track 1 requirement.
Other allegations include violations of consumer-protection statutes and breach of contract for failure to deliver “working and reliable Coin devices in a timely manner.”
The lawsuit points to an online video published by Coin as part of a crowdfunding campaign to support its case. On its Web site, Coin says it has sold more than 300,000 of the devices. Coin originally said devices would ship in the summer of 2014, but that was delayed until April 2015.
The result is that the device “cannot function as the company said it could function,” Kronenberger says. He seeks class-action status for the lawsuit.
“The most interesting thing will be what exactly the Coin founders, executives, and investors knew before they ran that crowdfunding video,” he says.
For Kronenberger the case speaks to a larger question. “It’s an issue for the crowdfunding world,” he says. “It’s also an issue for all of Silicon Valley. Do you take the promises of founders at their word about what their products will do and how far certain companies in Silicon Valley will go in order to raise money and sell products?”
