Turn ons, turn offs, data hacks and the ‘unholy alliance’
It is not normal in this industry to follow a story as it unfolds, grows, exhibits some twists and turns, a data hack, unlikely allies, and a ‘pivot’ - all in about five days. This is not ‘Game of Thrones’ - it’s the mobile payment industry! Although, I have to say, it’s been brilliant to follow. For those of you not aware of what has been happening, I will attempt to relay the story as close to its chronology as possible, as well as adding in some other information that came to light over the course of the week. Please forgive me if it gets confusing, but I think it will be worth it.
At the beginning of last week, a report came to light explaining that both US pharmacies Rite Aid and CVS Health Corp had deliberately modified or disabled NFC-enabled POS terminals to prevent access for customers wanting to use Apple Pay. Both pharmacies are members of the Merchant Customer Exchange (MCX), the consortium that is still months away from officially launching its own mobile wallet. However, the fact that it is coming, means that retail partners are in a difficult position concerning NFC-enabled mobile payment transactions. CVS and Rite Aid were never official Apple Pay partners, but the mobile wallet worked at those locations because of payment terminals supporting NFC. Then Rite Aid turned off the NFC support 24 hours after Apple Pay became available to consumers with the new iPhones. CVS followed closely after.
While none of the sources make a specific reference to MCX, Rite Aid did say that it was launching its own mobile wallet next year. MCX gives retail partners the ability to add to a standalone app to the venture’s branded mobile wallet, CurrentC. “CurrentC will offer customers the freedom to pay with a variety of financial accounts, including personal checking accounts, merchant gift cards and select merchant-branded credit and debit accounts. Additional payment options will be available in the coming months,” MCX said in the announcement about the CurrenctC brand. The system will use a QR-code system displayed on the merchant’s POS which is then scanned by the customer’s phone. CurrentC will automatically apply discounts, initiate loyalty programs and withdraw funds from a customer’s current accounts – cutting out credit-card processing fees.
Pretty soon, Wal-Mart had waded into the skirmish with their views on the subject, which were a little negative towards the credit card companies. Understandable, as the company is is suing Visa for $5 billion for what it says are excessive card swipe fees. On the other hand, the MCX-backet wallet, CurrentC, unlike Apple Pay, which encrypts payment data and keeps it out of the hands of retailers, connects directly to a customer's bank account. It will also allow retailers to mine valuable data on spending patterns, which they can use to better target advertising and drive loyalty programs. You can read more on the data being mined in an interesting post from Nick Arnott over at iMore, in a piece titled; ‘In-depth look at CurrentC and the personal data they want to collect’. He looks closely at the data capture and concludes; “I have additional concerns about CurrentC, but am hoping to hear back from them before disclosing them. Needless to say, CurrentC doesn't look like a great app for consumers to trust their information with. With CurrentC, you're not the customer — you're the product being sold.” How ominous.
Meanwhile, we heard very little from MCX themselves. They stayed fairly quiet, speaking only to selected journalists. However, MCX Chief Executive Dekkers Davidson was quoted during a conference call with Reuters that, “MCX and the merchants that founded MCX are challenging ... an entrenched, very large status quo, a $500 billion ecosystem on the payments side.” The MXC and their retail members were also backed up by the National Retail Federation. “Merchants large and small make business decisions every single day based upon what makes the best sense for the business, their associates and most importantly, their customers,” commented Mallory Duncan, senior vice president of the US’s National Retail Federation, in a statement issued in response to the NFC/Apple Pay shut-off. “The payment systems they decide to implement are no different. Data security is paramount, but so is flexibility, cost and ease of use. There are a number of new technologies reaching the marketplace, and a number of other systems on the horizon. It is easy to second guess why a specific retailer chooses one technology or another, or what payments they will or will not accept, but you can be sure that the bottom line consideration is what is best for their company and their consumer.”
Meanwhile, speaking at a WSJD Live conference by, Apple CEO Tim Cook revealed that there have already been over one million card activations through the Apple Pay mobile payments system over the first 72 hours of the service. "The early ramp [of Apple Pay] looks fantastic," said Cook to The Wall Street Journal managing editor Gerry Baker in an interview. Cook did not reveal any specific numbers regarding the first few days of the Apple Pay service. However, Cook did describe the problem with Wal-Mart, Rite Aid and CVS as a "skirmish," and that the resolution of the problem will be on the consumers. Cook said mobile payments had failed so far because they were built to serve the business models of their creators, rather than to provide a useful experience for customers. Because Apple’s primary goal is to sell more phones, tablets, and laptops, its system is more straightforward.
However, by pulling the plug on NFC-based payments, MCX partners not only killed Apple Pay but also killed all other tap-to-pay platforms, including Google Wallet, and Softcard. It didn't take long for what one protestor described on Reddit as "An unholy alliance forged in the fires of hate" to form: users of the Apple SubReddit and the Android SubReddit joined forces to protest Current C's partners—which according to a TechCrunch report now consists of 110,000 retail stores representing $1 trillion. "Let's invite /r/Android to help us boycott retailers that are disabling NFC readers," reads the boycott call posted by Apple supporters. "We can unite to put pressure on them, since it affects us both!" And in the Android SubReddit, a mirror post. "We wanted to invite you to /r/apple to help support us boycotting retailers that are disabling NFC. It affects us both!" Unholy alliance indeed.
In January 2013, Fierce Retail reported MCX had been asking retailers in 2012 to pay a big upfront fee from $250,000 to $500,000 to get on board, and sign three-year mobile payment app exclusivity deals with MCX. Retailers who signed up may have had a one-year grace period from the start of their exclusivity contract to bail out of the deal. If Apple Pay gains steam early, some retailers might look to take advantage of this option to ditch MCX. However, if deals were signed in 2012, that grace period is long gone but retailers may be coming up on the end of their exclusivity agreements even though CurrentC hasn’t launched yet, MCX said, during the conference call, that when retailers join the consortium they do so on an exclusive basis, but there are no fines if they leave the group.While Wal-Mart has said it has no plans to support Apple Pay, its rival Target is taking a more pragmatic approach. Target said it plans to use MCX for in-store checkout but is allowing Apple Pay for online purchases through its mobile app. Target is featured on the Apple Pay website.
MCX also claimed that their retailers were worried about the security of Apple Pay and that their own offering - CurrentC - would be more secure. However, this assertion was tested last Wednesday when, less than 36 hours after this ‘kerfuffle’ over the shutting down of NFC POS’s were made public, MCX confirmed that hackers had obtained the e-mail addresses of some participants in a pilot programme. It appears that only the emails of these early mobile app testers have been stolen, which is not as significant a data breach as having payment data or other personal information taken, like home addresses or phone numbers. In addition, many of these email address were dummy accounts used for testing purposes. However, MCX says it’s continuing to investigate the situation and will provide more updates as they arrive. With interesting timing, MCX, the same morning, published a blog post to clear up misconceptions about its technology and its aims as a company. One section in the post discussed the security aspects to CurrentC, saying “the technology choices we’ve made take consumers’ security into account at every aspect of their core functionality.” Embarrassing.
By the end of week, there was a ‘pivot’ in place. For those of you not familiar with the term, a ‘pivot’ is the 21st Century equivalent of the old 20th Century ‘u-turn’. It’s basically corporate speak for ‘We screwed up here, the consumers are not happy, which will invariably lead to the shareholders not being happy, meaning we have to retreat and go back to the drawing board.” This ‘pivot’ was slyly brought out during another conference call held between CEO Dekkers Davidson and COO Scott Rankin and selected journalists. The new rule is, apparently, that MCX partners who want to accept Apple Pay won’t be fined but must leave MCX if they wish to accept Apple Pay. The following is a series of amalgamated quotes from a number of publications who reported on the line and from private interviews afterwards. These cumulative quotes give a nice conclusion to the story:
Techcrunch; “We’re agnostic about technology. We started with QR code-based technology that allows us to go to market broadly. If we need, we can pivot to NFC.” Davidson
New York Times; “CurrentC was built on QR because that was seen as the fastest way to get the app in consumers’ hands. People in the industry had largely written off near field communication as a mobile payment option — until, that is, Apple incorporated it. It’s ironic in a way that we’re talking about a really old technology being employed here. Way before Apple Pay, merchants hadn’t enabled it or planned on using it.” Davidson
PC World; “We started with a cloud-based QR code because it allows us to go to market right away on any phone. If we need, we can pivot to NFC at any time. There are also opportunities to work with low-energy Bluetooth.” Davidson
There are even reports that MCX is considering accepting payment cards in its mobile wallet; going against its original development purpose. Re/Code reported that MCX executives “did give themselves some wiggle room, saying CurrentC will eventually be open to all credit and debit cards, but they didn’t say when that will happen, or which specific cards will be supported.” They continued to be cagey when asked if MCX members who accepted Apple Pay would be fined or asked to leave MCX. Business Insider reported that following the conference call, in a private interview with COO Scott Rankin, Rankin said, “Despite what has been reported, MCX retailers were allowed to use Apple Pay without suffering any sort of penalty. However, MCX retailers will have to leave MCX if they want to accept Apple Pay.”
However, in an interview with Re/Code, when asked about Meijer — a grocery chain that is continuing to accept Apple Pay despite being a member of MCX — Rankin gave what the publication called “a non-answer”, saying that “I think if they want to go forward and continue to accept Apple Pay, down the road at some point if they want to be a customer of MCX and roll out CurrentC and offer it to customers that’s great.” All very confusing.
NFC World+ did uncover a little bit of news of their own, “NFC World+ understands that there is a bigger goal to generate new revenues for members beyond cutting costs. That will be achieved, we understand, by providing customers with a credit account which functions like a single store card account that works across all MCX merchants so that customers have one credit balance available to them that they can use at any merchant that accepts CurrentC. This would enable the lucrative interest income currently earned by credit card issuers on outstanding balances to be captured instead by MCX member merchants via a single giant store card scheme.”
It’s amazing to think that this all played out over a single week. Ultimately, Rite Aid and CVS screwed up the handling of this. As Business Week argues; “It’s hard to argue that you’re doing right by your customers when you stop accepting a form of payment that you’ve already demonstrated presents no technical hurdles and you don’t have an alternative to offer. CurrentC isn’t expected to be ready until 2015, and the specifics of the system aren’t public.”
No doubt this will be a topic of conversation at this weeks Cartes in Paris. I look forward to discussing it with you all there.
Steve Atkins
Contactless Intelligence
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