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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