Apple Pay Already Highly Successful Despite MCX Merchants Ban

28 Oct 2014 | Author: | No comments yet »

Apple Pay Review: Easy to Use, but Still Hard to Find.

Last week, iPhone 6 owners got Apple Pay, a free service that lets you buy things at stores and inside apps using a digital version of your credit card and a thumbprint. Apple Pay launched on October 20, and while many iPhone users enthusiastically adopted it, even purposefully making purchases they didn’t need just to see it in action, some retailers have turned away from the new technology.

There is little doubt that the new Apple Watch stole the show during the company’s big event on September 9, but it was the introduction of Apple Pay, its contact-less mobile payment system, that was the most intriguing.Rite Aid and CVS weren’t official Apple Pay launch partners, but shoppers armed with new iPhones found that the chains had near-field communication card readers that were compatible with the new mobile payment system—at least for a few days.NEW YORK — The decision by CVS Health and Rite Aid to block Apple’s mobile-payment technology presages a long fight over the fees and customer data collected when people use smartphones to make purchases.

For years, the ability to seamlessly pay for goods with your phone has been more fiction than reality, marred by clumsy interfaces and spotty support. Along with companies such as Wal-Mart Stores Inc. and Best Buy Co., which have said they won’t use Apple Pay, the pharmacy chains are holding out for a retailer-developed mobile-payment system known as CurrentC that’s slated to debut next year. On Monday, Apple CEO Tim Cook took to the stage at the WSJD Live Global Technology Conference and addressed this coming battle of digital payments directly. The drugstore companies are members of the Merchant Customer Exchange, a group of retailers developing their own mobile payment solution called CurrentC.

The stores are presumably trying to scupper Apple’s mobile wallet rollout because they are part of a consortium developing a mobile payment product of their own, CurrentC. Security expert Nick Arnott was able to discover just some of the information CurrentC plans to collect, including location data and movement. “With CurrentC, you’re not the customer — you’re the product being sold,” said Arnott. 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.

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. Walmart has long waged war against credit card companies that charge two-to-three percent transaction fees (and prevent Walmart from making even more money than they already make.) To use CurrentC, customers link their bank account to the app, rather than linking a credit card.

The list is exhaustive: Visa, MasterCard, American Express, Wells Fargo, Citi, Capital One, Foot Locker, Walgreens, Macy’s, and McDonald’s each promise to accept the new payment method. 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.

Right now, digital wallets rely on Near Field Communication (NFC) readers, but CurrentC will rely on QR codes instead (seemingly a step backwards in technology.) A spokesperson for Walmart offered Business Insider this explanation, “There are certainly a lot of compelling technologies being developed, which is great for the mobile-commerce industry as a whole… 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.

MCX’s members believe merchants are in the best position to provide a mobile solution because of their deep insights into their customers’ shopping and buying experiences.” However, the underlying reason for turning to their own payment platform still rests on credit card tensions. 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. Here’s where I think the calculation gets interesting: If merchants want to dent reliance on Visa, MasterCard and American Express (which have about 80 percent of the market), they’ll implicitly be encouraging consumers to use white-label cards.

The application asks if you want to use the same payment information used for buying apps in Apple’s App Store and media in iTunes to purchase physical goods. I agreed with a tap of my finger, but chose to add more cards to the service while I was at it. (You can add up to eight accounts.) The process works like so: snap a photo of your card with the iPhone’s camera, then enter a few extra pieces of information to confirm your identity. As more customers upgrade their phones to the newer models that work with Apple Pay, pressure will build on retailers to accept it, said Thad Peterson, a senior analyst with Aite Group, which is based in Boston. “It’s about getting customers to buy stuff, and you don’t want to stop customers from buying stuff just because you don’t offer a payment alternative they chose to use,” he said.

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. In hopes of protecting their bottom line, retailers are willing to force customers into using a less attractive, potentially less secure, e-payment system, but a vendetta against credit cards may not be the best way to get customers on board. CurrentC is in pilot tests in select locations across the country, with plans for a national rollout next year, according to a statement on its website.

To change our habits of paying with cash and plastic, Apple Pay needs more capabilities, like standing in for all of your buy-10-get-1-free punch cards that would give you more reasons to pay with a phone. Target, another MCX member, doesn’t allow Apple Pay for in-store transactions, though customers can use it to buy things on their phones through the chain’s mobile app. 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. 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. You only have to do this once: The app will prompt you to add one of your existing credit cards by typing in its digits or snapping a photo. (Find more setup details here.) Apple Pay works with most existing major credit and debit cards, which you can add to your phone in a matter of minutes.

The exceptions are cards from some smaller banks, store-branded cards and corporate cards. (Apple is working to fill those holes.) At the store, look for an Apple Pay logo, or more likely the universal contactless payment logo—a sideways Wi-Fi symbol with a hand approaching it. The card companies offered merchants $5.7 billion in compensation, as well other other concessions, but Walmart rejected the settlement in favor of filing separate lawsuits against individual companies. In building its payment system, Apple teamed up with major banks and credit-card companies, allowing the iPhone maker to piggyback on their checkout systems. After eating a meal and receiving the bill, I asked, “Do you accept Apple Pay?” The clerk, unsure of herself, responded with hesitation: “Um, we use iPads and can swipe your card.” Fair enough, I thought, this is the first day of living in a post-wallet world. 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.

That’s why, at the end of the day, Walmart felt that money alone could not make things right. “The settlement does nothing to reform the price-fixing payments system that has let credit card swipe fees skyrocket over the past decade and nothing to keep them from continuing to soar in the future,” explained Mallory Duncan, general counsel at the National Retail Federation, after her group (which includes Walmart) rejected the deal. Nobody else’s finger will work unless you’ve registered that person’s print on your phone. (I tried.) At most stores, that’s it—you’re done. 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. The retailers faced two challenges in trying to disrupt credit-card companies: One, getting a competing payment system into the hands of consumers; and two, creating a cheaper system to process those payments.

Unlike Apple Pay and some other mobile-payment applications, CurrentC is designed to work with QR codes — bar- code-like symbols that can be printed on a receipt or scanned from a screen. The Starbucks app now accounts for 11% of the company’s sales and over four million transactions a week. (Benjamin Vigier, the mastermind behind Starbucks’ application, joined Apple in 2010.) While apps emerged as a good consumer-facing approach to a modern payment system, merchants were also hard at work developing behind-the-scenes payment-processing systems.

Target’s REDcard looks like a normal debit card (it even offers cash back), but works only at Target stores and dodges traditional payment networks. “It’s a debit card in the sense that it’s debiting straight from a bank,” explains James Webster, research director of global payments at IDC, “but using different rails.” Cheaper rails, that is. 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. Apple Pay doesn’t even store your credit-card number, just a unique code that’s a stand-in for your card, hidden on a part of the phone that doesn’t get backed up online. The companies formed a group—Merchant Customer Exchange, or MCX for short—and set to work creating a product that would be as usable as credit cards and work over a cheaper payment network, just like REDcard, by connecting directly to a user’s checking account.

The app, which is set to launch in the first half of 2015, works on iOS and Android phones and allows users to pay at participating retailers by scanning a code at checkout. CurrenC will automatically apply coupons and loyalty programs at the register, giving consumers an incentive to choose CurrenC over competing e-wallets. Its response underscores one of the best safety features of Apple Pay: Because it is tied to a regular credit-card account, you’re not liable for purchases you didn’t make.

CurrenC’s coalition includes Walmart, Target, K-Mart, 7-Eleven, Best Buy, Gap, Banana Republic, Dunkin’ Donuts, and a host of other major retailers from a diverse mix of industries. The payment system doesn’t currently support debit cards, meaning that every Apple Pay user is costing merchants high credit-card interchange fees every time it’s used.

I’d consider it more useful if Apple Pay could address my George Costanza-style exploding wallet, so overstuffed with junk it makes me sit at a tilt. Apple is arguably in league with the banks and card companies, accepting a slice of each transaction as a reward for helping perpetuate the credit-card status quo.

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