Apple Pay and MCX – Misunderstood dynamics

When BestBuy chose sabre-rattling and reject Apple Pay from its stores, it made little sense that it will reduce its righteous anger to be about something that is transitory – as the state of a radio on a phone. And now that NFC has found a path to acceptance in BestBuy’s own payment terminals – we can put that chapter behind us. And treat it as the correct decision from a merchant, whose future on a quarterly basis is entangled with the products it sells on behalf of Apple. As Apple experiments with the highly personalized and curated retail experiences of products like the Watch, it is important for channel partners like BestBuy to appear to be more aligned than before, to smooth over any appearance of a conflict.

The move by BestBuy was anticipated for a while. In fact, in my opinion it saved considerable face by letting Tim Cook speak to the partnership – thus putting more pressure on other merchants – and making Tim Cook the spokesperson for merchant change.

It has been known for a while that as the exclusivity arrangements a number of merchants had with MCX expire mid-2015 that these merchants and others had been advocating a more inclusive approach towards payments acceptance. In that light, It is important not to view merchants as a heterogenous block, painted over casually with the same brush. MCX represent a vocal mix of committed merchants who share a common purpose and a refrain of imbalance in the relationship with networks and banks.

And the move by BestBuy does not dictate that everyone else shall follow suit. Kohl’s is one such example. As a merchant who sees over half of its sales come through its Private Label card – Apple Pay holds little promise unless it supports Private Label cards. And until then – Apple Pay will incent Kohl’s loyal customers to shift spend to cards that are supported – a possibility that any loyal Kohl’s customer will tell you is a non-starter. Kohl’s hope so too.

Where does this leave MCX? First of all – MCX and Apple Pay are not competitors. In fact, the radio of choice – in this case NFC – should be agnostic of how the transaction is funded. And today Apple Pay is limiting that choice – in the toll fee that it extracts from banks – and thus disincentivizes cheaper funding sources like ACH. And by leaving the decision on what to tokenize, to networks – Apple has further handicapped the potential evolution of a tokenization framework that can wrap more funding choices and in turn – provide better economics.

MCX has had its share of internal turmoil on leadership and direction, further evident from the absence of its CEO in the quotes it has released to the press of late. Some of that can be excused by reconciling with the tremendous undertaking at hand – envisioning anew the concept of a network. But as merchants settle in for a long haul – standing up a new Visa or MasterCard – they cannot afford to be isolationist and come out unscathed.

So for now, we have Apple Pay and NFC – and the myriad solutions that will walk through that open door. Maybe this will drive some merchant interest towards leveraging some of what’s possible with merchant friendly payment options. If not for iOS, then Android. The risk otherwise is that by pinning all of the merchant hopes on MCX – it raises its liability in the event of a public misstep or failure. One of the core principles of war is to ‘never introduce an element that you cannot afford to lose’.

And still – I wish to close out with the following tweet.

Board of Advisors at SimplyTapp - creators of Host Card Emulation driving democratization and open access to NFC in Android. Mobile Commerce & Payments Lead at Experian Global Consulting, serving Experian's clients in Banking, Retail, Consumer Credit & Payments. A strategic adviser w/ over 17 years of international Tech & Business Strategy consulting, advising firms in banking, retail & asset mgmt that seek clarity & insight in to the myriad business models around payments, fraud & commerce. Founded DROP Labs, a mobile payments/commerce strategy & advisory practice. Tweets here. I'm on LinkedIn here.
Cherian Abraham
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  • Dave Birch

    A measured and thoughtful take on the situation Cherian, many thanks. Am I correct in thinking that implicit in your analysis is the criticism (that I share) that MCX should have mixed up the non-network payment scheme with the multi-retailer wallet system?

    • droplabs

      Dave – There is no business case for a multi-retailer wallet system unless it was driven by the desire to have an off-network payment scheme, right? Unless you consider the smaller merchants who won’t be able to invest in such an effort – the Big Box retailers were unified behind a proposition to conceptualize a new scheme – even if that takes years, because that would still be worth it.

      The part I think is being overlooked when we say the consumer benefit remains entrenched on the Network’s court – is how rewards are getting squeezed via downward pressures on interchange outside and here in the US. Once rewards falls away – and subsequently when issuers are forced to charge fees, shrink in size, consolidate and other things banks do that we don’t like – the landscape will look far different for a merchant to differentiate its message around consumer value.

  • nfcguy

    We all make decisions to leave cards at home based on their value to us versus the number of card slots availabe in our wallets. Merchant issued plastic cards have traditionally fared worse in wallet share than network-branded payment cards. Mobile Cards fundamentally disrupts the wallet share game for card issuers because it is no extra burden to carry the 100th Mobile Card in your smartphone.

    The card networks having been pushing open loop Mobile Cards for 10 years to minimize any spend shift caused by the adoption of merchant issued closed loop Mobile Cards.

    Just as you said, blocking NFC was just a short term tactic; MCX’s strategy to leverage Mobile Cards to shift consumer spend behavior is sound. Let’s see if MCX’s execution has improved.

  • jame millican

    Do you guys know most of the time retailers or banks sometimes open loop holes themselves for their self interest ? look at it these way … banks pay billions of dollars a year to insurance on fraud and they thinking why would we be giving billions of dollars away for free to the insurance firm !! lets open a thiny loop holes to compensate the money we are giving insurance firm away . after all we are all in business ! have you ever thought of cancelling you insurance on your phone ? simply because you dont loose your phone and each month you pay the insurance firm !! here you go !! YES !

    Secondly for retails ! the economy is hard every where in the world ! I believe only the rich or you win a lotto or gift from friends will make you get an apple product ! how many people want to waste thousands on a product while you can get things at cheaper rate that will give you a close result to apple product ! example of good products are lenovo ,HP,SONY SAMSUNG etc !! as for me i wont waste money to buy apple product when i know i can get something cheaper ! so my point here is retailers like apple and other luxury stores dont get rich customers everyday ! if they were to choose customers to sell the product to based on crime issue trust me they wont make profit as much as other compititors do ! so sometimes they open a thiny loop holes for themselves too ! just to keep the business going ! BOTH BANKS AND RETAILERS THEY ARE ALL PLAYING A GAME AND EVERYTHING COMES DOWN TO THE FREE MONEY INSURANCE FIRM GETS WHICH OBVIOUSLY THEY DONT LIKE TECHNICALLY !