For an ecosystem that has been described as unfair and out of balance, creating a prevailing atmosphere of mistrust, the payments industry should really look to the MacWorld Expo of 1997 for lessons to its future.
“We have to let go of this notion that for Apple to win, Microsoft has to lose.”
What Steve Jobs meant was that for Apple, this was not a zero-sum game. Apple dominated in the years since, by creating new markets, and devices that captured both minds and marketshare.
And yet, in Payments – it has always been a zero-sum game. Even with the emergence of new payment modalities, the number of mouths to feed went up, but the value envisioned and derived ended up being the same or at best – slightly incremental. It would be fair to say that inefficiencies and inequities were left alone. So there was little surprise when – spurred by the lack of diversity in thinking, merchants acted on their own and created MCX.
Paydiant – A merchant wallet that needs no abbreviation
But MCX was hardly the only merchant friendly wallet at the time. Paydiant was qualified to be called the only bank-friendly and merchant-friendly wallet, despite being oriented around an imperfect solution (QR always will be – at least to me). It brought a product that banks could white label, offered a point-of-sale integration to merchants that did not require infrastructure upgrades, offered a blazing fast QR capture, and cleverly left the question of “who owns the customer” to others in the value chain. Paydiant remains a wallet that worked hard to bring balance and value – and their success in that is reflected by how they have managed to line up merchants like Subway and Harris Teeter. Still Paydiant fails when it gets close to the consumer – because it cannot – and that may be just fine with both its bank and retail partners. For any mobile wallet aspirants, Paydiant’s model should be a case study.
Paydiant — FIS — MCX – A transitive relationship?
At first blush, MCX has a clarity of purpose and an operating model that is more common sense than disruptive. It looks to utilize the FIS relationship for cost effective debit, ACH and potentially “BIN routing” that can cut its costs deep. And on the credit side, its merchant constituents can fall back on existing Private label relationships they have with ADS, CapitalOne and Discover to skimp on interchange. Still these strategies are hardly devoid of risks – not the least of which is that BIN routing skips network fraud mitigation measures, where as on ACH – the payee holds non-negligible credit and fraud risk.
But the MCX – FIS relationship does expose it to capitalize on another opportunity. Gemalto stood out as an odd-pick for MCX, especially after when it partnered with FIS – as FIS’s own acquisition ‘mFoundry’ stood in contrast to what Gemalto was signed up to offer. After all, mFoundry had Starbucks app under its belt, and Gemalto had little to offer in comparison. But now, FIS’s partnership with Paydiant could pique MCX curiosity in trying out a third suitor – a proven QR code wallet solution that so far has BofA, CapitalOne and Barclays as bank partners, and Subway on the retail end. With Gemalto – it has none of those advantages. Between Gemalto, mFoundry and Paydiant, I believe MCX backed the wrong horse.
MCX and its limited charter:
Part I of my MCX take is here – and though I agree with its charter in spirit – I am unconvinced of its impact at the point-of-sale. For merchants who have much to gain from eliminating the point-of-sale, MCX survives purely because of it – while keeping a tight leash on its utility to ensure it does not go beyond payments. It has a laser like focus on reducing payment acceptance costs – a charter that fails to find resonance with both banks and consumers.
Bullish predictions for MCX adoption has tended to follow Target’s Red Card and its 14% share of overall Target purchase volume – as predicative of its potential. Though Target Red Card was unaffected in the 2013 breach, Target has somewhat scaled back its aggressive promotion of RED Card in its stores – to address the customer angst of being asked to share ones bank account details with a retailer who was recently target of a large-scale attack. MCX, as a retailer initiative – can never hope to step out of the shadow of the breach and has to have a plan to assuage customer fears about fraud and unauthorized access – and while those things may be inevitable – address how MCX and its merchant partners plan to make the customer whole if things were to go wrong as they always will.
And then again, for merchants who want permanence and quick settlement with no room for chargebacks, there is always bitcoin.
60 Retailers vs 25 Million
As much as it (MCX) has tried to find empathy beyond the big box retailers for the payment acceptance cost issue – in the small to mid merchant category – the emergence of a new class of processors – Square for example, has meant that transparency and simplicity has brought a certain irrelevance to the payment funding source. There is a blended rate regardless of the card swiped, and the focus is on driving incremental revenue through personalized marketing – something that is in need of fixing. Coupled with quicker merchant on-boarding, short term commercial lending, and an overall democratization of marketing capabilities (in-store, online, local et al) and personalization – the golden age of small business retailing is here.
Meanwhile, The Four Horsemen of Internet:
And even as when Google and Amazon chose to dabble with Payments – they chose to do so as a means to an end. In the case of Google, it was to aggregate new data points to present a holistic and complete picture of the consumer. Where as in the case of Amazon – a canvas that still has much white space – the focus is to reducing as much friction from the customer intent to buy including the act of payment itself. Google devotes much of its time these days towards focused less on last mile technologies, and more on a composite of tech and protocols that enables it to bridge the gap.
Meanwhile, Amazon focuses on how it’s elastic capabilities around logistics, fulfillment, inventory and localized consumer reach can address inefficiencies in small business retail today. What many forget is that for a small business merchant, costs and inefficiencies start way before a card is swiped – sometimes, even before the product actually makes it to the shelf. And if Amazon could focus on those bigger and more meatier problems today – then the payments function is just an incremental benefit, a utility, a means to an end. I doubt we are much long before we see small merchants or curated storefronts that are powered by Amazon – come to be in the neighborhoods around us. The lockboxes today are just the telegraph exchanges of yesterday – they portend a far too important next chapter in the melding of online and offline retail.
Payments and Solipsism:
Finally, MCX has much at stake. It is true that the payments system gatekeepers have let in rot – and the system have suffered as a whole. EMV is an imperfect solution, but is a certainty now – with a number of issuers preparing for Chip/Pin. And along with it comes – new terminals. MCX retailers understand what terminal upgrades may bring – and could turn to selectively turning off contactless to dissuade competitors from taking advantage of new terminal rollouts. The irony would be that – just as point-of-sale is becoming versatile and irrelevant – retailers are forcing customers to become fixated on them. It stems from the belief that customers care about payments as much as we do, and for the same reasons. It is but a flawed assumption.
Meanwhile, those with no such compulsions – lie in wait. In retail, there are indeed barbarians at the gate and there are more than one.
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