Competition in Mobile Payment Systems

Mobile payment systems are nothing new – contactless payment via NFC technology has been used in a number of retailers since Google Wallet was released in May of 2011. Even before then, MasterCard and Visa had begun implementing their own NFC payment systems – PayPass and payWave, respectively. More recently, in October of 2014, Apple released its own NFC payment system Apple Pay on the iPhone 6 and 6 Plus, with a number of bank, credit card, and retail partners.

All of these systems require the same technology – NFC (Near Field Communication) – in order to work. This means that even if a retailer is not an Apple Pay partner, it can still be used there if the retailer has an NFC terminal.

After the release of Apple Pay, a number of users began utilizing the feature even at stores who weren’t official partners. However, after just a few days, it was noted that Rite Aid, and soon after CVS, disabled their NFC terminals that were capable of accepting both Apple Pay and Google Wallet. Both retailers are among a list of big-name stores that are participating in the “Merchant Customer Exchange,” which is leading the development of a new mobile payment app called CurrentC.

While seemingly a simple case of competition, this gets a bit more complicated. CurrentC takes payment only through store credit and debit cards, or directly from your checking account via ACH transfer. In other words, it requires giving the retailer direct access to your bank account in order to avoid merchant fees from MasterCard, Visa, American Express, Discover, etc. Security breaches at stores are bad enough – as evidenced by recent problems at Home Depot, Neiman Marcus, and Target (which happens to be a CurrentC partner). If they had been using CurrentC, there’s certainly sufficient reason to suspect that the hackers would have been able to gain direct access to consumers’ bank accounts. And by avoiding Visa, MasterCard, etc., consumers would have significantly less fraud protection on their side.

Looking at this comparison from another angle, consider who benefits in each case.

CurrentC is run by a group of merchants, unofficially led by Wal-Mart, who are aiming to get around merchant fees, increasing their profits by 1-3%. And Wal-Mart certainly doesn’t like merchant fees – its former CEO Lee Scott once reportedly said “I don’t know that MCX [creators of CurrentC] will succeed, and I don’t care. As long as Visa suffers.” The merchants gain information and access; right now, they use loyalty cards to build a profile of shoppers based on their spending habits. If loyal cards and payment are combined under one system, an even more thorough profile can be created by analyzing spending habits across a number of retailers. And how are consumers effected? Less fraud protection, more liability, and – perhaps most important of all – less options. These retailers are telling their customers how they should be paying.

Now take a look at Apple Pay and Google Wallet. Both Apple and Google make no money out of the payment systems – they just facilitate the transaction. MasterCard, Visa, American Express, and Discover (once it joins Apple Pay) all make the same they would from merchant fees if the customer had swiped their card instead. The only party who benefits from Apple Pay and Google Wallet is the consumer, who is given another option to pay if they find it convenient, using the same credit and debit cards they’d use otherwise, with the same fraud protection guaranteed by the card issuers.

Mobile payment systems are growing, but with inferior features that benefit merchants and – at best – inconvenience consumers, CurrentC is a step in the wrong direction for mobile payment technology. Regardless of which side one is on in the Android vs. Apple debate, it’s clear that the two will be working together to push out CurrentC and encourage payment systems that give the consumer a choice in how they can pay. A boycott has already begun among both iOS and Android users who are voting with their wallet and choosing to shop where consumers benefit – not where merchants develop workarounds to increase profits.

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