Tuesday, November 4, 2014
The mega retailer-backed mobile wallet enterprise Merchant Customer Exchange has had a rough couple of weeks. First MCX received an onslaught of criticism for reminding its merchant partners that they cannot contractually accept the mobile wallet transactions of competitors. Then a data breach of the MCX pilot program reportedly compromised the email addresses of MCX mobile wallet users. Payment pundits have remarked that these are not auspicious developments for a mobile wallet scheme that hasn't even yet launched.
After Apple Inc. launched its mobile wallet, Apple Pay, in October 2014, MCX partners and drugstore chains CVS pharmacy and Rite Aid began accepting near field communication (NFC)-based Apple Pay transactions at their retail outlets. Then came word from MCX regarding the pharmacies' contractual obligations to the providers of the CurrentC mobile wallet; MCX ordered the drugstore chains to turn off the NFC feature on their in-store POS devices so NFC-enabled transactions, such as Apple Pay transactions, could not be accepted.
The public fallout from that decision apparently prompted MCX Chief Executive Officer Dekkers Davidson to post a blog on the MCX website that said, "MCX merchants make their own decisions about what solutions they want to bring to their customers; the choice is theirs. When merchants choose to work with MCX, they choose to do so exclusively, and we're proud of the long list of merchants who have partnered with us. Importantly, if a merchant decides to stop working with MCX, there are no fines."
While payment analysts picked apart MCX's stance, another public relations challenge arose for the Boston-based mobile-wallet provider when a data breach was brought to light on Oct. 28. In a blog post MCX said, "Within the last 36 hours, we learned that unauthorized third parties obtained the email addresses of some of our CurrentC pilot program participants and individuals who had expressed interest in the app. Many of these email addresses are dummy accounts used for testing purposes only. The CurrentC app itself was not affected."
In an Oct. 31 corporate blog post titled "Exactly Who is MCX Waging War Against?" Aite Group Analyst Nathalie Reinelt stated the obvious. "Considering that MCX's mobile payments app, CurrentC, hasn't even officially launched, having a data compromise this early in the game is problematic," she wrote.
Reinelt added that a significant challenge faced by MCX is generating awareness and trust for CurrentC among consumers when its competitors, principally Apple, have a sizable leg up in brand awareness and trust in the data security of its applications. "[E]ven with the backing of all its big-box merchants, CurrentC is not a brand consumers recognize (much less automatically trust)," Reinelt said. "Creating an application consumers use consistently is challenging enough, but having a security issue before it even launches is probably not the best go-to-market strategy."
Additionally, the prohibition against MCX merchants accepting competitors' mobile-wallet transactions strikes Reinelt as more of a broadside against the card brands than Apple itself. "Apple merely enabled the mobile transactions to take place by adding the required hardware updates (e.g., NFC, SE) and worked with the payments industry to ensure a seamless user experience," she wrote.
Instead, MCX is targeting the card brands, according to Reinelt. She stated, "This is really a war between MCX and the payment networks, which, when asked by our very own Ron Shevlin [an Aite senior analyst] if MCX would succeed, Wal-Mart’s CEO made perfectly clear: 'I don’t know that it will, and I don’t care. As long as Visa suffers.'"
There is no love lost between big-box retail giant Wal-Mart Stores Inc., the biggest backer of MCX, and Visa Inc., MasterCard Worldwide and the American Express Co. Wal-Mart, and other retailers and merchant associations, have been in a decades-long legal dispute with the card brands over the electronic transaction fees charged merchants by the brands.
Rick Oglesby, Senior Analyst/Consultant at Double Diamond Group LLC, agreed that MCX's actions are aimed at the card companies and not Apple per se. "Their goal is to compete with the payment networks, so blocking network-sanctioned wallets is a way to leverage their retail footprint in that competitive effort," Oglesby told The Green Sheet.
Oglesby clarified that MCX is not really the bad guy in the controversy. "It's not really a decision by MCX; it's by the merchants," he said. "MCX contracts have long included an exclusivity clause, so the merchants are just complying with their MCX agreements."
Reinelt pointed out MCX is putting its merchants into a Catch-22 situation. "MCX actually will allow its merchants to accept Apple Pay, but those merchants will have to leave MCX," she said.
However, the MCX prohibition will apparently not translate into momentum for CurrentC, which is expected to launch sometime in 2015. "No, growth will only come if they put a great product on the market," Oglesby said. "But they can hurt a competitor, and they will probably not see any significant negative repercussions either."
The Electronic Transactions Association weighed in on the controversy, saying that MCX merchants blocking mobile-wallet transactions from Apple Pay, Google Wallet and Softcard is anti-consumer and anti-competitive. "This decision has nothing to do with convenience, reliability or security," the ETA said in a statement. "Rather, published reports indicate this is a deliberate boycott in favor of CurrentC. … Because MCX says its retailers represent 1/5 of total U.S. retail sales, this group boycott could negatively impact consumer choice in the mobile payments marketplace."
The controversy doesn't seem conducive to MCX winning over consumers, let alone its own merchant base. In her blog post, Reinelt wrote, "I can see it now … MCX participating merchant: 'Let's see … do I roll the dice on a mobile payment app that has taken two years to not even launch, isn't a brand anyone recognizes (so, consumer adoption and usage is questionable), and is already getting off to a rocky start? Or do I cut my losses and go with Apple Pay, which we know works and already has consumers transacting successfully on it?'"
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