Apple Pay, the new crown jewel of the Apple lineup, has generated the kind of mainstream media buzz that only Apple could bring to a topic like payments. Nonetheless Apple Pay has begun to run into some of the inevitable hurdles as it tries to build traction in the mass market. The news over the weekend is that Rite Aid and CVS have joined Walmart, Best Buy and others to disable Apple Pay from their payments options.
This all comes just one week into its launch.
I wanted to take a deeper look at why these merchants are stepping away from Apple Pay so I asked Glen Sarvady and Rod Witmond to share their thoughts on Apple Pay and these latest developments.
Glen Sarvady is a respected thought leader in the payments space who came to Deluxe from McKinsey & Company where he was a Senior Expert in the areas of Electronic Banking, Bill Payment and e-billing. His background includes the Federal Reserve Bank in Chicago as well as CheckFree/Fiserv.
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Rod Witmond has a broad background that spans financial services, payments, payroll and postage. Currently, he leads the Product Management team at Deluxe where he relies on his strong background in the financial services field to improve and enhance the existing product suite at Deluxe.
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Rite Aid and CVS have turned off their Apple Pay. What is behind this action?
Rod Witmond: This is an interesting development; it’s turning into a battle between Apple (who was smart enough to align with the banks, for now) and the Merchant Customer Exchange or MCX, which is run by the merchants.
Glen Sarvady: Exactly, this is clearly not an operational issue. Both CVS and Rite Aid are members of MCX, an organization that is developing its own solution (CurrentC) that will be going head-to-head with Apple Pay but won’t generally be available until next year.
It certainly appears the MCX merchants were pushed to not help Apple build an early lead before their solution launches. Some reports indicate their MCX membership agreement prohibits them from offering competing services. It’s interesting to note that MCX members such as CVS and Rite Aid have actually disabled their NFC terminals, making it impossible to use not just Apple Pay, but Google Wallet and other earlier payment options as well. This could have additional ripple effects with consumers.
Why is MCX getting into this space and what they are trying to accomplish?
Rod: By developing their own solution, they hope to drive down costs, especially the costs of transaction processing. They see this as a way to do so. They have some incredible names on their side, among the group – Walmart, Target, Best Buy, Gap, CVS, Rite Aid, 7-11, etc.
Despite the great names and powerful position they have, their application is cumbersome – per the last plan one has to download an app with an embedded QR barcode reader and scan a QR code at the POS when shown by the merchant.
Glen: Totally agree with you with the added twist that the MCX merchants see major value in the transactional data that will flow through the app. They certainly don’t want to get disintermediated in that space by Apple. It’s really a power play and by partnering with the original payments providers, Apple has managed to get access to the data and create new revenues while not completely disrupting the payments process.
Sounds interesting. Do you think MCX has a chance to take on Apple, knowing that they were slower to the market – with a clumsier solution?
Glen: It seems like an uphill battle unless they’ve re-thought their approach since the last I heard. MCX claimed that each participating merchant would offer its own app, drawing on common payments plumbing.That hardly sounds like a compelling customer experience to me!
I’m assuming this compromise was necessary to keep all the participating merchants on the reservation. The fact that we’re past the two-year mark with nothing beyond press releases to show for it speaks volumes about the massive challenge of moving such a multi-headed consortium forward.
Rod: It almost comes down to Apple and its consumer-friendly abilities vs. merchants who can seriously dig in their heels if they want. The reality will be some sort of gradual shift, with increases in users on both sides. I have a hard time seeing a huge increase in the MCX solution – until it becomes easier to use, but that is just a matter of time.
The other issue – for both sides – is that the status quo of pulling out a debit/credit card and swiping it at the terminal is not at all hard, albeit far less secure. The ultimate irony, in the short –term, is the merchants that are disabling the ability to take Apple Pay are, essentially, driving customers back to use their debit or credit card and the higher fees they are looking to avoid.
That brings up a question I wanted to ask. Is this something consumers are even looking for in the market?
Glen: I’ve been in the “solution in search of a problem” camp for some time, but Apple seems to have timed the market perfectly, given the heightened sensitivity around data breaches and security. We can’t truly get rid of our physical wallet, however, as long as we need to carry our drivers’ licenses. We’ve taken baby steps here as well, thanks to pouches large enough to carry 1-2 cards that affix to the back of mobile phones.
Rod: There doesn’t seem to be a HUGE problem to be fixed. The smart thing that Apple did was to carve out a pretty thick slice of the process – i.e., just the piece that is facilitated by the use of a card today. Others have tried to extend further up or down the payments process requiring even further changes and, therefore, obstacles.
Apple has carved out a unique element and simplified a process – in the right environment. Not having to take out my wallet from my pocket and my card from my wallet is probably good – however, as previously stated, it isn’t that hard to pull out the wallet and the card.
So who do you both see winning this battle in the long term?
Rod: None of us will know who’s going to win, but Apple has a very dedicated customer base and is first to market, so it has a clear advantage. As we all know, Apple is the best at developing solutions that are beautifully simple for consumers to use and has an incredible consumer-friendly brand. Meanwhile, MCX is establishing a beachhead and has a considerable amount of transaction market share so can dig its heels pretty deep if it desires.
Glen: Another challenge working against MCX is the difficulty of bringing an innovative product to market under a consortium governance structure. At a high level the players may be well aligned, but they also have varying sub-agendas, risk tolerance, investment appetite, etc.
I sense we’ve seen some of the result of this already given CurrentC’s time to market and the nature of its solution. With the latest news from 10/30/14 about Meijer, a grocery store chain based in the Midwest, being the first retailer part of the MCX consortium to accept Apple Pay, it will be interesting to see how this affects the others in the group. Will they stay unified or will this be just the first chink in the armor?
Thanks guys, great insights into what is going on with this latest development. It’s clear that this move from Rite Aid and CVS is both a contractual move as well as a power play from a future competitive product. The jury is out on both Apple Pay and CurrentC but Apple Pay users aren’t happy about the line in the sand that the MCX retailers have drawn.
MCX clearly has an uphill battle against a very strong opponent with a highly loyal customer base. It should be really exciting in 2015 to see how the market responds to CurrentC as well as see how Apple Pay usage looks after 3-6 months of being in the market.