When Google Wallet was formally launched in 2011 it was almost immediately blocked by the major US mobile carriers. Verizon was the first and most vocal, citing security concerns. Yet the “real reason” for disallowing Google Wallet was the fact that all the major US carriers (except Sprint) were part of a competing payments initiative called ISIS (now renamed Softcard).
There’s a direct analogy with what’s happening to Apple Pay now. Over the weekend MacRumors reported that Rite-Aid and CVS pharmacies disabled the near-field-communications (NFC) capabilities of their point-of-sale systems (POS) to stop customers from using Apple Pay (or Google Wallet).
As with ISIS and the wireless carriers, a broad consortium of retailers is preparing a competing mobile payments system and they don’t want Apple Pay to kill it before it can get off the ground. That system, as you’re probably now aware, is called the Merchant Customer Exchange (MCX) and it has created an invitation-only app for both iOS and Android called “CurrentC.”
CurrentC uses QR codes and scanning at the POS rather than NFC-based contactless payments. Prior to the arrival of Apple Pay, this was a logical approach for several reasons, including the fact that NFC appeared all but dead in the US.
Mobile payments using QR code-scanning has also been used by payments startup LevelUp. LevelUp has seen limited traction with the approach. Previously Levelup was aimed broadly at the small business market but has now shifted to focus exclusively on restaurants
MCX was reportedly floundering for several years (I heard this directly from authoritative sources) before it licensed startup Paydiant‘s tools and platform to make them the core of the system.
Much has already been writtten about the Apple Pay-retailer controversy and I won’t reproduce all that detail here. TechCrunch has a very good overview of CurrentC and how it works. There’s also another good explanatory article (via John Gruber) on the Mainstreet blog.
There appear to be a number of reasons why retailers want to promote CurrentC at the expense of competing payment systems such as Apple Pay or Google Wallet:
The system seeks to avoid credit card merchant fees by tapping directly into users bank accounts using the electronic ACH processing system and by relying on store credit cards for payment
Not using NFC would avoid POS terminal upgrades and associated merchant costs
No NFC, as I said above, means CurrentC could work with a much broader array of devices
Promoting their own platform would mean direct access to more data; Apple Pay gives retailers no data about the transaction or transaction history
It also appears contractual agreements between MCX and the member retailers preclude them for a period of time from supporting any other mobile payments system. TechCrunch asserts that the exclusivity period may have already run. Yet CurrentC won’t formally launch until 2015.
As I suggested in a sarcastic tweet yesterday the move to block Apple Pay isn’t “very omnichannel” of CVS or Rite-Aid. That buzzword boils down to simply being more consumer-centric and adapting to consumers’ habits and their chosen way of buying. Clearly that’s not the philosophy guiding retailers’ thinking about Apple Pay, and it’s very shortsighted.
While the US wireless carriers may have successfully stalled Google Wallet, Apple Pay has resurrected it. The carrier supported Softcard/ISIS system is the one that will fail. And from everything I’ve seen that’s also likely to happen with CurrentC.
If it is true that MCX is partly an effort to avoid credit card processing fees by getting consumers to buy with their bank accounts or store credit cards, that tactic is likely dead on arrival. Consumers will not abandon credit cards for many reasons, including the points and rewards they receive.
Extra discounts can get them to use store credit cards instead of bankcards. However the overwhelming majority of consumers are simply not going to plug their bank accounts directly into CurrentC. I wouldn’t under any circumstances. Think of the hacking potential – right into your bank account.
The material I’ve seen indicates the CurrentC system is less secure than Apple Pay. With major retailers being hacked almost weekly it’s unlikely that consumers en masse will adopt a lower-security standard payments offering. Security is one of the major barriers to adoption for mobile payments in general.
Apple CEO Tim Cook told the WSJD conference last night that in the first week since Apple Pay’s launch more than a million credit cards have been activated into the system. This indicates the potentially massive demand waiting to be unlocked.
If CurrentC is as awkward as suggested, the one “weapon” the retailers have to encourage its usage is bribery. They’ll have to offer discounts and other incentives to get people to use the system — perhaps in perpetuity. That may work initially but probably won’t sustain CurrentC or compensate for a subpar user experience. It also would be self-defeating if one of the primary objectives is boosting margins by saving money on merchant card fees.
I’ve spoken to people at Paydiant several times and they’re smart. They understand the current barriers to mobile payments adoption. However the totality of information about the CurrentC/MCX system that I’ve seen indicates that it’s not any easier than a card-swipe and in some ways may be more cumbersome. In fairness, Paydiant may not have created the CurrentC app or its user experience, though the QR code scanning methodology is theirs.
The MCX retailers should give their customers what they want now: the ability to pay in multiple ways including using Apple Pay. They should then try and differentiate their product with a superior user experience and other benefits — instead of using coercion. It didn’t work for ISIS and it probably won’t work for CurrentC.
Postscript: The big issue appears to be the MCX contract. MCX is threatening retailers with fines for working with alternatives such as Apple Pay according to information obtained by the NY Times:
The problem is that under the terms of their MCX contractual agreement, they are not supposed to accept competing mobile payments products like Apple Pay, according to multiple retailers involved with MCX, who spoke on the condition of anonymity. If these retailers break their contracts, they will face steep fines for doing so, these people said.
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