Apple caught in feud between merchants, credit cards

28 Oct 2014 | Author: | No comments yet »

2 drug chains disable Apple Pay, as a rival makes plans.

NEW YORK — Apple Pay, the Silicon Valley giant’s highly anticipated mobile wallet, has been available for only one week but already may be inciting a battle within the payments industry.

When a group of retailers including CVS and Rite Aid got fed up with the fees charged by Visa, MasterCard (Apple’s big partners on Apple Pay), they started working on CurrentC, which cuts those networks out of the payment process.The rollout of Apple Pay has quickly become tougher than expected for the trendy iPhone manufacturer, as retail outlets CVS, Rite Aid and Walmart joined various other stores in rejecting the new mobile payment system.“Our customers found it too easy and convenient,” according to a fake company spokesperson whom I made up because I’m disappointed and spiteful. “To say nothing of the fact that it encouraged people to shop more at our stores.Macy’s, Bloomingdale’s and Toys R Us, were among the first retailers to accept Apple’s new payment system last week, letting some customers check out by flashing their new iPhones near a reader at the register.

Letting customers use a safer and more secure method of payment is just plain bananas,” the spokesperson said, before handing me a 7-foot-long banner of coupons and special offers. There was no explanation given for the abrupt reversal, but both outlets are part of a retail group connected to the Mercant Customer Exchange (MCX), which is trying to piece together its own similar payment system called CurrentC. The move follows announcements by Walmart, Best Buy, Target, Dunkin’ Donuts, and more than a dozen others, all of whom are also part of MCX and have chosen to shy away from Apple Pay. When the highly-publicized mobile wallet launched, Apple boasted that more than 200,000 stores around the United States would accept the method as a form of payment.

Details of how CurrentC will work are still fuzzy, but we know that the solution is a mobile app that bypasses credit cards—and the associated merchant fees—by linking directly to customers’ checking or savings accounts. Apple’s entry into mobile payments follows efforts by Square, Google and Softcard — a wallet application backed by the three largest U.S. wireless carriers — that all failed to gain widespread acceptance. Macy’s credit cards — which give customers access to special coupons and promotions — account for half of the department store’s sales, said spokesman Orlando Veras. There are a few key differences, as outlined on the CurrentC website: A new QR code is generated for each transaction, but CurrentC stores your encrypted financial information in the cloud. An internal email obtained by SlashGear told store employees to explain to disappointed customers that Rite Aid planned to have its own electronic wallet system available in 2015.

By cutting cardholders out of Apple Pay’s launch, repeat customers will have to choose whether they want to be a part of the next big thing in shopping or spend more. For consumers who don’t have enough money in their checking accounts to cover their purchases, it also connects with store-brand cards, also known as private-label or white-label cards. Apple doesn’t store your account information at all—instead, the company has partnered with more than 500 banks to issue device account numbers that are unique to each card and each iPhone. But on Apple Pay’s first day, at Chase banking services seven times more people added Chase credit cards to Apple Pay than signed up for new credit cards, Avin Arumugam, Chase’s digital executive director, said in an interview with Bloomberg. Instead of holding your phone near the terminal and authenticating your fingerprint with Touch ID, CurrentC will require you to open the app, authenticate the transaction with a four-digit pin, and generate a QR code to hand off to the cashier.

Owners of the new smartphones sign up by taking a photo of their bank-issued credit or debit card using their phone’s camera or add it using iTunes. It is worked with the major banks and credit card companies — Visa, MasterCard and American Express — that Apple says account for more than 80 percent of U.S. credit card purchases, allowing the iPhone maker to piggyback on their checkout systems. While CurrentC is being positioned as an NFC competitor, the QR code technology has already been criticized as an old-school, inefficient, and insecure way to pay. Even though consumer credit card use overall has recently slowed, presumably because more people have jobs, store cards have boomed since the financial crisis ended. While hundreds of thousands of stores have NFC technology, it doesn’t necessarily mean their systems have the software or ability to accept Apple Pay, said Richard Crone, CEO of Crone Consulting in San Francisco. “They are old terminals,” Crone said.

Notably, CurrentC only requires a working bank account for purchases, not a credit card. “The feedback we are getting from customers and retailers about Apple Pay is overwhelmingly positive and enthusiastic,” the representative said. “We are working to get as many merchants as possible to support this convenient, secure and private payment option for consumers. Good luck getting your money back if criminals successfully get into CurrentC’s systems and drain thousands of dollars of actual money from your actual checking account.

The battle will surely escalate in the coming months as companies like PayPal and Google update their mobile wallet strategy to deal with the fast-changing market. White-label cards are generally perceived to be riskier than your typical Visa or MasterCard, meaning analysts worry that more store-card users will run up debt they can’t pay back. But for now, many are betting on Apple Pay as the mobile wallet to beat. “Apple Pay is the most convenient, most secure, and what’s best for consumers,” McLaughlin of MasterCard said. “That’s what will win out in the end.” If the MCE has placed any consumer protections whatsoever against freely sharing your personal transaction information among members, there isn’t a whisper of that to be found on their corporate website. Apple will gain $89 million in “high margin fees from transactions” in 2015, with the possibility of that increasing to $310 million in 2016 — still less than 0.5 percent of the company’s operating income in 2016, Gene Munster, senior research analyst at Piper Jaffray & Co. wrote in a note.

There’s no reason not to believe that when you order the Garlic Glutton’s Gorge at the Olive Garden, that information will be immediately sent to CVS to help them sell you mouthwash and breath mints. So: CurrentC is harder to use, it makes your banking information vulnerable to a whole new entity, this entity is utterly unproven, and every purchase you make adds another piece of data to an expanding and increasingly valuable marketing dossier on you and your habits. When a customer makes a purchase on a store-branded credit card at the issuing store, the retailer pays a lower transaction fee, according to analysts. Despite the likelihood there is less money in these transactions, Apple has worked out some deals with companies offering branded cards, including with Disney and its Visa card.

To avoid paying transaction fees to credit card companies: These stores can save a few percent per purchase by moving money directly out of your checking account. User experience will probably play a big role, but I also wonder which groups of people these two payment systems will capture, and how that affects adoption. Veras, the Macy’s spokesman, said the department store is “working with Apple on adding this functionality in the future, however, there is no current timeline set for when it will be available.” Mobile point-of-sale payments remain a relatively small market, totaling $11.1 million last year in the U.S., according to research firm eMarketer. Citi and Wells Fargo were working hard to create products that crushed PayPal, but PayPal prevailed because it solved a very specific problem for sellers on the eBay platform: it protected them from online fraud.

One way to think about which mobile payment system will win is to think about which consumers will be better credit risks when they do use a mobile wallet. I’m amazed that Merchant Customer Exchange retailers — many of which are run by people who have received some form of formal education, I guess — are ignorant of the hard lessons learned by the music industry during the turn of the millennium. Customers at Whole Foods have welcomed Apple Pay — mainly because it shortens lines — said Angela Lorenzen, vice president of operations of the grocery’s Northern California region.

Vital to its adoption will be the success of Apple and its partners in convincing consumers that the technology is safe and secure — and whether store employees can easily explain how it works, analysts said. CurrentC seems to be starting first with the lower end, higher-risk piece of the market, consumers who might use cheaper smartphones and may already have store-brand credit cards.

An opportunity to create a terrible format that served every need and many fantasy scenarios of Sony Music, and create a customer experience that was wretchedly horrible in every conceivable way! For department stores, it could wind up alienating the very shoppers they are desperate to keep — those who choose to make purchases in person, not online. Jermaine Mills, a 27-year-old technology consultant who says he spends thousands a month at Macy’s, was disappointed when Apple Pay rejected his store-branded card. All of the music they’d ripped from CDs that they legally owned, everything they might have bought elsewhere, everything they might have recorded themselves … all of it got thrown into Sony DRM Jail.

Their music collection became a “library” in a very real sense: Copying music to an external device or a different library required that they “check it out.” What if they wanted to listen to it again, on your home PC? Go to hell; you bring that music player right back here, young man or lady, and sign it back in before Sony will even consider allowing you to ever hear your daughter’s holiday recital! I once called customer service while testing the system and was told, in cheery seriousness, that perhaps Sir should just buy a second copy of the album, “for maximum playback flexibility.” In Sony’s fantasy scenario, the system was a way to finally lock the consumer out of behavior that a music publisher finds inconvenient. Customers had been doing those things for decades, via CD, tape and LP formats, but Sony would like to goddamn know just how the hell any of it benefitted Sony in any way.

Apple had a point when it opened the iTunes Store: If music publishers wanted to fight piracy, Apple said, then they had to build a system that made buying music easier than stealing it. The iTunes Store opened with a much more flexible DRM system in place, and the behind-the-scenes drive to eliminate DRM entirely was already long underway.

The worst-case scenario for CurrentC isn’t as bad as that: Taking things from CVS is the sort of capital-“S” stealing that attracts the attentions of store security and the local gendarmes. CurrentC might stand a chance if the retailer consortium were satisfied to just create a system that’s almost as easy as Apple Pay or Google Wallet.

But they’ve loaded it with so much anti-consumer claptrap that every tech journalist and educator has placed it on their “Actively warn people against using it” list. But I did discover that the MCE’s headquarters is in Needham, Massachusetts, a town that I drive through every time I go to The Outer Limits in Waltham to buy comics.

The difference between Middle-Aged Andy and previous editions is that whereas all of us realize that we could totally go over there and TP their offices on Halloween, only 16-year-old Andy would be able to hook up that idle thought to the twin engines of serene self-righteousness and a frolicking disregard for consequences.

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