One issue would be that the merchant name doesn't always line up nicely to where you are. For example, a local Burger King shows up as something like, "Hidden Rocks, LLC" instead of "Burger King" or even "HiddenRocksLLC/BurgerKing."
The assumption here is that if this were to catch on as a security mechanism the establishment you're in would clearly advertise their merchant name, or you could at least ask for it.
It wouldn't take that many customers to ask before the guy behind the counter at "Corner Cafe Market" would be able to give you "Culinary Drinkware Inc." as their merchant name offhand.
* Your credit card has a balance of $0 on it
* You have some app that allows $NAME to deduct $X from it
* You transfer $X to it earmarked for $NAME for some limited amount of time.
I.e. you could walk into Starbucks, have an app on your phone to say you're depositing $20 into an account earmarked for /starbucks/i for 30 minutes.