How Chase is tackling mobile payments

Unlike many banks, Chase is focused on mobile payments, with its four-month-old Chase Pay product.

Late last week, it acquired MCX, a retailer consortium with members like Walmart, Target and Best Buy, its second mobile payments acquisition. Three months ago, Chase partnered with LevelUp, a mobile payments app geared at smaller retailers on the East Coast. The MCX deal is not surprising; Chase announced its Chase Pay product in October 2015, a full year before it became available to its customers, and said at the time that it would be using MCX’s technology.

“The [MCX] deal provides Chase with an important entry point into many of the largest merchants in the U.S., as well as the appropriate technology to integrate with those outside the MCX consortium, but does not guarantee its prospects for adoption,” said Jordan McKee, a principal analyst in 451 Research’s payments practice, in a report on the acquisition.

Retailers in the MCX network are some of the largest in the U.S., which should help drive Chase Pay activity. Those companies don’t accept rival wallets like Apple Pay, so Chase doesn’t appear to be in competition for consumers. However, Chase offers its businesses fixed pricing without the usual fees for interchange, merchant processing or network processing, which would make Chase Pay more appealing to businesses than its rivals, but consumer adoption of any mobile payments still hasn’t really taken off.

There are many reasons mobile payments haven’t reached their tipping point yet. They’re not seamless; placing a mobile device in exactly the right position can be trickier than it should be. It’s hard to make new payments technology run on old, rusty rails. The development of payments infrastructure, at least in the U.S., has been too slow to keep up with consumers’ current standards for fast and secure payments. As payments become increasingly sophisticated, hackers do too and new features meant to tighten data privacy in payments can only be useful for so long.

Existing mobile payments experiences are also inconsistent with each other and none are widely enough accepted to lessen some of the friction, which slows adoption down even more. Every experience is so different; there are different apps to log into, different passwords to remember; some let you authenticate with your fingerprint, some don’t; some pay functionalities live in their own apps, some require you to access it from inside a larger app. There isn’t one single experience where a user can pay multiple ways at a single location.

“The [MCX] consortium became so myopic in its obsession with circumventing the card networks’ transactions fees that it entirely lost sight of how CurrentC would add value for consumers,” McKee said. “Its strategy began to further unravel as members such as Walmart strayed course and launched their own mobile wallets.”

With LevelUp, customers who have downloaded the app link their credit or debit card and scan a QR code at checkout to pay for their items. Their purchases at a single retailer are bundled into a monthly bill that the customer pays later, thereby lowering card fees for the retailer. The payments process has not always been smooth, mostly due to the technology hardware involved.

However, LevelUp also offers a rewards scheme through its retail partners. They vary from one place to another but they generally award you a discount in a dollar amount after spending a certain amount at a given place – you could unlock a $10 credit at a favorite coffee shop after spending $80 there, for example. They’re small rewards, not like racking up points to use when purchasing your next big vacation, but it’s the kind of incentive that other mobile wallets need to change consumer habits, which is ultimately what will allow mobile payments to take off.

If Chase offered the kind of incentives LevelUp offers within the network of MCX merchants, it could bring what’s been missing in mobile payments to a scale.

Now if only Chase’s next payments move would move away from the old QR code.

WTF is the MCX?

explaining common fintech jargon in simple language

What is the MCX?

The MCX , or Merchant Customer Exchange, is a consortium of U.S. retailers founded in 2012. The group created a a merchant-owned mobile payment app, now known as CurrentC.

The MCX website currently lists 63 merchants in the consortium, including many of the largest retailers across various sectors,including 7-11, Bed Bath and Beyond, Kmart, Exxon Mobile, Walmart, Gap, and Olive Garden.

Why was the MCX created?

Depends who you ask. Some would say CurrentC was created for customers. As retailers release their own proprietary mobile payment apps, consumers don’t want to download multiple payments apps, so CurrentC was created to simply things. The aspiration is that the app will work at all retail locations.

Another popular theory is that the MCX was created by merchants to combat interchange fees and third party mobile wallets. Merchants and banks are stuck in an endless battle over the fees banks charge merchants for card processing, known as interchange fees. CurrentC utilizes gift cards and ACH to fund accounts, circumventing credit card companies and removing interchange fees from the equation.

The technology powering CurrentC provides further evidence of merchants trying to eliminate all outside payment sources. CurrentC uses QR codes for payments, not the newer NFC technology. Mobile wallets like Apple and Android Pay utilize NFC technology and are powered by credit card APIs, cementing card interchange fees into a merchant’s daily life.

Its been a few years now…why hasn’t CurrentC been released?

There has been beta testing of CurrentC, but the MCX’s mobile payment app is in a rough place now. CurrentC got hacked in October of 2014, and there have been some concerns over privacy issues. Not being able to get it together pushed a few retailers to jump ship and create their own mobile apps or open up their systems to mobile wallets like Apple and Android Pay. Walmart, CVS, and Kohl’s are only a few of the retailers that have created their own mobile payment products.

MCX has gotten some bad press since its founding. Trying to passively cut out mobile wallets like Apple Pay and create a merchant-exclusive mobile payment app has rubbed some customers the wrong way.

Some would argue CurrentC was doomed from the start, and was only a power play against banks and third party wallets. It’s difficult enough to create a mobile payment app for one store with a good user interface. But creating a single app that fills the needs of over 60 retailers, ranging from restaurants to gas stations to big box stores, seems damn near impossible.


CVS ditches consortium solution, develops in-house payment app

CVS Health announced the launch of a retail payment app late last week, spurning the Merchant Customer Exchange and flying solo into mobile payments. Aptly named CVS Pay, the feature will be integrated into the current CVS Pharmacy app, allowing customers to pay at in-store checkouts using the app.

CVS Pay supports all major credit and debit cards, and integrates a rewards program, ensuring shoppers get rewarded with points when they shop with the mobile app.

Customers will also be able to manage and pay for their prescriptions through the mobile app, a convenient feature stemming from the in-app integration. Users will now be able to refill, manage, and pay for all pharmacy items through the app, and can receive alerts regarding their prescriptions. All prescription verifications take place within the app, and customers are sent their receipts through the app.

“Over the past year, our digital team has brought to market numerous new digital tools like CVS Pay that make shopping at CVS Pharmacy easier and more convenient,” said Brian Tilzer, senior vice president and chief digital officer of CVS Health. “We’ve been excited by the level of customer adoption of these digital solutions, and we will continue our quick pace of innovation and deployment to make our customers’ health care experience even easier.”

Guess the MCX has to update their page...
Guess MCX needs to update its merchant page…

Mobile payment capabilities are currently available at select stores in New York, New Jersey, Pennsylvania, and Delaware, with a national rollout slated for Q4 2016. The app is available for iOS and Android operating systems.

This move by CVS is another blow to the MCX, a consortium of merchants created to compete with third party wallets like Apple Pay and Android Pay. Mired with delays and security issues, CurrentC, the consortium’s retailer app, has still yet to be released, and retailers like CVS and Walmart have chosen to proceed down the in-house mobile app development route.

Retailers are exploring the advantages of developing their own apps, and that may be another reason why companies are leaving MCX. By developing an app from the ground up, merchants can create a tailor-made user experience that wouldn’t be available from a consortium built app.

“Many solutions have become a commodity, making a consortium a thing of the past,” said Or Ben-Oz, founder and CEO of Rewire, a remittance company. “I think that in the future we’ll see more retailers launching their own wallets with perks and experience so well it will be hard to turn down.”

Photo credit: MikeKalasnik via Visual Hunt / CC BY-SA

Walmart Pay and the overcrowding of the mobile payment market

The release of Walmart Pay, Walmart’s new mobile payment service, on May 16th came as something of a shock to the retail industry. Up until then, Walmart had been working with other major retailers in the US – under the umbrella organization MCX – to create CurrentC, an alternative mobile payment service that was supposed to enable retailers to avoid credit cards fees and to have direct access to their customers’ shopping data.

A number of news sources have documented the drama behind Walmart’s decision to go solo and analyzed the problems leading up to CurrentC’s apparent demise. Allen Weinberg, a partner at Glenbrook Partners, a payment strategy consulting firm based in San Francisco, CA., cautioned Tradestreaming that it’s premature to mourn MCX or CurrentC, given that Walmart has not formally abandoned the initiative. Nevertheless, with MCX declaring its intention to focus on bank deals, it seems likely that many other retailers and shops will jump on the mobile payment service bandwagon by developing their own offerings.

Below, we examine how the proliferation of mobile payment services could impact the entire retail industry.

The Good

As customized mobile payment systems could become the norm at various retailers, consumers are unlikely to have the patience, inclination, or even phone storage space to download each and every mobile payment app.

This is an opportunity for retailers to strengthen their brands and their client bases by building on their existing forms of what Paul Kemp-Robertson, cofounder and editorial director of Contagious Communications, calls ‘branded currency’.

In a highly entertaining 2013 TED Talk, Kemp-Robertson posits that

“brands literally stand or fall on their reputations. And if you think about it, reputation has now become a currency. You know, reputations are built on trust, consistency, transparency. So if you’ve actually decided that you trust a brand, you want a relationship, you want to engage with the brand, you’re already kind of participating in lots of new forms of currency.”

When asked how mobile payment services will affect already existing forms of branded currency, Kemp-Robertson replied: “The trajectory of the mobile wallet trend is only going to get steeper as mass adoption starts to kick in,” he wrote Tradestreaming via email. “The brands that will benefit the most are those who move beyond mere convenience and offer tangible rewards and utility in exchange for people’s sustained loyalty. That’s why Walmart has ring-fenced its Pay system, presumably as a way of locking customers into its retail ecosystem. In other words: ‘Stay loyal and reap some exclusive, premium perks.’”

The Bad

In order to keep their customers loyal, retailers will have to become incredibly competitive. Price comparison apps like ShopSavvy already allow consumers to scan a barcode and compare prices at retailers and stores throughout the country. Walmart itself has a Savings Catcher app, which scans customers’ receipts and makes them eligible for a gift card rebate if a local competitor has the same item advertised for less.

In a scenario in which every retailer is desperate to keep customers true to it and its mobile payment platform, it seems very possible that retailers will be forced to become so competitive that they’ll start losing money on some of their sales.

The Indifferent

At present, mobile payment platforms in the US haven’t exactly taken off. According to a recent study, in the last quarter of 2015, a mere 16.6% of people tried Apple Pay after acquiring an iPhone 6/6S. The same study showed a lack of enthusiasm for the product among potential and present Apple Pay users, as 30% of people polled said forgetfulness was the reason they didn’t use the mobile payment platform when they could have, while another 30% simply didn’t realize that Apple Pay was accepted at the store they were shopping.

It’s possible that by incentivizing their clients through discounts and loyalty programs, retailers like Walmart will have more success motivating clients to use their mobile payments systems than Apple, Google, and Samsung are having with their ubiquitous payment platforms.

Even if retailers do offer these incentives, it’s still possible that consumers will rebel against the over-saturation of the mobile payment market. Peter Cohan critiqued Apple Pay in Forbes, pinpointing what would seem to be the trouble with all mobile payment systems: they are a “solution in search of a problem … But the simple reality is that credit and debit cards are not a major consumer pain point — they generally work quickly and painlessly.”

The Different

However, Glenbrook’s Weinberg suggested that there’s an implicit difference between retailer mobile payment services and ubiquitous mobile payment platforms, explaining, “I consider Walmart Pay, Target Pay, and the others to be less of an open-loop payment scheme like Apple Pay and Android Pay, and more of a way to ‘payment-enable’ those merchants’ proprietary apps, somewhat like Starbucks has.”

In other words, retailers’ mobile payment systems aren’t ‘a solution in search of a problem’ but really the next stage in the evolution of proprietary apps. If that’s the case, consumers would be likely to carry around apps from multiple retailers because each app would provide value above and beyond payments.

As more and more retailers join the mobile payment movement, it will be interesting to see just what challenges these emerging payment systems bring, and how retailers will rise to meet these challenges.

Photo credit: MikeKalasnik via VisualHunt / CC BY-SA