Though Apple Pay has been available for only a week, Apple is already seeing resistance from retailers who have decided to block use of the mobile payments system. So why are these retailers blocking Apple Pay? What do they want the alternative to be?
Popular drugstore chains Rite Aid and CVS made headlines by disabling Apple’s new system, available only to owners of the new iPhone 6 and iPhone 6 Plus, without offering an alternative. In fact, the companies also disabled Google Wallet, a similar system that Google launched in 2012, and made NFC payments unavailable for the time being. Though neither acknowledged it overtly, the move is widely regarded as being directly related to the retailers’ membership in a consortium of the largest retailers in the United States, which is expected to launch its own mobile payments app next year.
Steven Kovach reports for Business Insider that Rite Aid and CVS disabled Apple Pay on Saturday, even though both chains have compatible NFC equipment that worked with the mobile payments system when it launched last week. Neither company has publicly said exactly why it disabled Apple Pay, but the decision is related to each chain’s membership in the Merchant Customer Exchange (MCX), an association of the largest retailers in the U.S. MCX retailers include not only Rite Aid and CVS, but also Walmart, Target, Best Buy, Shell Oil, Darden Restaurants, Lowes, Sears, and others. Altogether, they operate more than 110,000 retail locations and process more than $1 trillion in payments annually.
But MCX will eventually launch its own mobile payments app, and The New York Times reported that the terms of retailers’ contractual agreements with MCX specify that these retailers can’t accept competing mobile payments systems, like Apple Pay. If retailers break these contracts, they’ll face steep fines. And as consumers’ enthusiasm for Apple Pay grows, MCX retailers are stuck waiting for MCX’s app to launch.
MCX has been working on its own mobile payments app, CurrentC, which is anticipated to launch next year, to very low expectations from the tech community. Among those expectations is a strong confidence that CurrentC will offer, at best, a mediocre user experience. CurrentC will work only with users’ bank accounts — they won’t be able to connect their credit cards, as they can with Apple Pay — and the app will require users to scan a QR code to make a payment.
In fact, Kovach reports that CurrentC doesn’t even use the same kind of secure technology to encrypt a card number that Apple Pay does, so credit card companies aren’t likely to partner with it in the future if they’re not certain that consumers will be safe using it. That begs the question: will CurrentC really be safe enough, in an era of constant breaches and exposures of customer data, for users to trust it with their bank accounts? The answer, so far, is that we just don’t know yet.
Using CurrentC will also require users to go through a clunkier, less streamlined process than they’re beginning to become familiar with by using Apple Pay. A user will have to open the CurrentC app and use a camera to scan a QR code, or unlock the phone, open the app, and generate a QR code that the cashier scans. Kovach notes that that method has been proved to be less secure than NFC payments and the encrypted technology used by Apple Pay and Google Wallet. CurrentC will also enable merchants to track data on what users buy — something that Apple Pay doesn’t allow.
James Anderson, MasterCard’s senior vice president of emerging payments, told Business Insider of the move by MCX and its members, “They’ve taken away an option from consumers, and they haven’t done anything to replace it. You’d think they would’ve had something in place. But we’re happy to compete with it.” Consumers want a mobile payments solution that’s secure, accepted the places that they shop, and is available on the mobile devices that they use on a daily basis. Apple’s response to Kovach’s queries was more measured, and highlighted the response from consumers instead of the slight by MCX:
The feedback we are getting from customers and retailers about Apple Pay is overwhelmingly positive and enthusiastic. We are working to get as many merchants as possible to support this convenient, secure, and private payment option for consumers. Many retailers have already seen the benefits and are delighting their customers at over 220,000 locations.
Walmart, one of the leaders of MCX, gave a statement to Business Insider on why it won’t accept Apple Pay. The retailer said that “what matters is that consumers have a payment option that is widely accepted, secure, and developed with their best interests in mind.” But Walmart and the other large corporations that are members of MCX may be less focused on the consumer and more interested in eliminating the 2% fee that accompanies credit card purchases. Critically for retailers, CurrentC bypasses those fees, and adoption of the app would end up saving retailers money.
While two MCX retailers have eliminated Apple Pay without offering an alternative, the others have chosen to ignore Apple Pay altogether. Instead, they’re all banking on the success of Current C, an app that will likely be less secure and less easy to use.
As TechCrunch reports, with the help of an inside look at CurrentC, the app is part of MCX’s “multi-year plot” to eliminate credit card fees. A significant portion of the $1 trillion in transactions that MCX companies process each year come from credit cards, and CurrentC is an opportunity for the association of retailers to convince consumers to adopt a system that would take the 2-3% credit card fees out of the equation. Instead, CurrentC will process transactions through the Automatic Clearing House with much lower fees, automatically increasing retailers’ margins. Additionally, the app will enable retailers to gather more data on their customers — something that consumers rarely like to hear of an app looking for wide adoption.
In fact, Apple itself is capitalizing on consumers’ aversion to data collection by emphasizing the fact that Apple Pay won’t collect user data. But to Marc Freed-Finnegan and Jonathan Wall, the founders of retail software company Index, that “feature” of the mobile payments system is a problem. They write for VentureBeat that while Apple’s assurance that the system won’t track users’ purchases sounds like a promise that the company won’t monetize the collection of such data, it’s actually an “admission” that Apple Pay can’t collect the data that matters in retail.
Apple Pay and other NFC-based systems don’t have access to product or SKU-level data, and Freed-Finnegan and Wall argue that this limitation will restrict the value of the mobile payments system for consumers who willingly share personal data to get a better, more personalized experience with services like Amazon and Netflix. Apple Pay can’t currently access the information needed to create a receipt, which Freed-Finnegan and Wall describe as “table stakes in the journey to create a compelling consumer tool.”
While most of the retailer locations that accept Apple Pay are just using technical infrastructure that they already had in place, giving Apple Pay access to product-level data would require a direct integration with retailers’ systems. Those integrations would be complex legally and technically, and many point-of-sale systems are so difficult to work with that they lack basic security features like complete encryption, thus pretty universally unable to meet the technical demands of the features that tech-savvy customers might expect or imagine.
Even if Apple Pay, an offering of a company renowned for creating products that revolutionize a product category for consumers, has room to evolve and add features that would make it more functional, it seems unlikely that CurrentC, a less streamlined and less secure option, will be widely adopted. To attract early adopters, and to make it easy for consumers to create new habits around making mobile payments, a system needs to start small with something that people do everyday. (Think Starbucks and its successful app.)
Without ease of use, it’s likely that there won’t even be a contest between Apple Pay and CurrentC for the favor of consumers. CurrentC is aimed not at solving consumers’ problems, but at solving retailers’ grievances with credit card issuers. And that’s not a good way to get consumers on board.
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