“Contractual conflict”; Apple Pay and MCX, the new front in the mobile payments war.

A few years ago, while at one of the major POS annual user conferences, I had the opportunity to socialize with one of the initial members to MCX. At the time, I was with PayPal and mobile payments was more of an idea than a technology. MCX had just been announced and I was learning about the “hush hush, MCX Exclusivity” requirements. I was floored. How could that be good for either the merchant or the consumer? His answer; “They really did not care if MCX ever conducted a single transaction. If allowing Visa/MC into the mobile wallet forced lower overall fees (read cards as well) then MCX would have done its job”. When asked about how profitable CurrentC would be, Lee Scott, former CEO of Walmart said, “I don’t know that it will, and I don’t care. As long as Visa suffers”. It never seemed like much of a business plan to me.

It was all such a secret. I can’t count the number of times I heard; “The first rule of MCX is; you don’t talk about MCX”. Well, judging from the news, things appear not to have worked as planned. The veil was lifted on the MCX story when Rite Aid and CVS Health pushed aside Apple Pay and in doing so revealed a new wrinkle in the mobile payment war, contractual conflict. The notion that an exclusive MCX mobile payment solution might be a lever to force card acceptance fees down seems to have reached its apex. Are retailers willing to say no to Apple Pay? The consumer is caught in the middle.

One of the ingredients in the MCX secret sauce is the idea that retailers will adhere to an exclusive arrangement thus locking out competing payments systems in the mobile channel. As Karen Webster speculates in her 10/27 blog, MCX is likely to have told both Rite Aid and CVS “You simply can’t do it. And, the fact of the matter is that you’ve been caught two-timing with Apple Pay, and that’s clearly a violation of your contract with us.” In doing so MCX is leveraging its big stick, not its economics, product features, or consumer demand, but the strength of its legal teams and the adverse contract its members have signed. “This act by CVS and Rite Aid heralds the advent of the imminent battle in the mobile payment system,” said Anindya Ghose, a marketing and information-technology professor at New York University. Now that lines have been drawn, we will learn if MCX can drive the cost of payment down, or will its own member retailers instead chose to provide their consumers with choice. Call the lawyers.

Right to the “3rd” power”: Mobile Payment the POS and ROI

The arc of loyalty/payment programing, particularly as it relates to mobile, is now mature enough for retailers to set long-term strategic goals. The high level strategy is about consumer engagement. The objective is to create a more intimate consumer shopping experience that is contextual in nature. The requirement being: “Right to the 3rd power”; the right offer, to the right person, at the right time. The tool set for loyalty, payment and the integration of omni-channel marketing in the mobile channel is the POS.

Mobile is the most important next generation service, in many ways it is here today. Consumer adoption of mobile services is exploding. The consumer is willing and ready, even waiting for the retailer to catch up. First to market retailers will be in the lead and have an advantage. Ignore mobile and you risk losing both the Millennials and the X-er’s. Is there any doubt that the next group will only be more mobile? Cards, checks and cash will exist, and will require attention, but having a mobile strategy is the key to future success.

While EMV will drive NFC to the POS, consumer engagement will be driven by merchant rewards. The days when retailers give over control of their customers to banks and associations will end as mobile payment becomes the norm. In this war for the mobile consumer, the POS and cloud-based mobile payment is supreme. The transaction is changing from the legacy model of capture/authorize and settle to a robust IP based dialogue. This dialogue is between the consumer and the POS and is about the relationship between the retailer and the consumer. Unlike today where the transaction begins when the item, coupon or loyalty card is scanned, tomorrow’s consumer will begin the engagement long before they arrive at the location. Mobile app based solutions will leverage Geo Fencing, Wireless, and BLE to engage the consumers according to their preference. The IT environment required to deliver these services must be tightly coupled to the POS at the Transaction Services Layer (TSL). This important change in the transaction flow means that payment, rather than being outside of the TSL, is now a part of the TSL. This change means that the entire legacy payments network may be disintermediated from the mobile transaction. We see this with companies like National Payment Card Association and believe MCX shares this goal.

Retailers are understandably concerned about ROI. ROI is a result of more profitable shopping. ROI is more than a function of “frequency and shopping basket”, it is about shaping the consumers purchasing decisions. People are asking about ROI and Mobile and reluctant to allow legacy payment fees into the branded app. To the extent that consumers react through the use of offers, coupons, push notifications, points etc in the mobile channel, payment is required to close the transaction within the same user experience. The notion that the mobile consumer will be interactive with the mobile experience and then be asked to use a card for payment does not make sense. Using a card in the mobile channel would destroy the user experience and make it impossible to measure conversion.

Certainly, there are many issues impacting retailers and the POS environment. The key questions is: which IT solution makes the most sense and how does it set the retailer on the road towards a larger goal of implementing a successful consumer acquisition and retention program that is “Right to the 3rd Power”?

The Target Breach: what it means to card and mobile ACH payment:

In the aftermath of the Target Breach, David Heun at American Banker writes that ACH decoupled debit could be the big winner saying “security may have suddenly become the product’s biggest selling point.” He tiled the story, “Target’s Redcard Proves Less Vulnerable to Data Breach than Bank Cards”. Today Richard Crone, chief executive of consulting firm Crone Consulting LLC is quoted in PYMTS.com saying “Skimming the 16 digits on Target’s proprietary decoupled debit Redcard will probably not even be pursued by the fraudsters who captured that number because it can only be used inside Target”, he went on to say; “The proprietary Target card represents another reason merchants may want their own card because it can mitigate risk, too.”

National Payment Card Association is the leading provider of ACH decoupled debit card services at the POS and the world’s largest processor of mobile ACH transactions at the fuel pump. ACH decoupled debit is safer than legacy payment because the actual payment credentials are not being passed through the POS. Instead the consumer links their financial account to a card or phone as a psydo number/Token across our database. This process isolates the consumer’s financial data from the payment processing network. This differs from legacy payments where the payment credential is on the card; given the choice, “no one would pass actual payment credentials through the point of sale”, says Richard Crone

Retailers can lower their liability to payment data loss by implementing ACH decoupled debit programs. At the 2013 Pinnacle Users Conference in Dallas, I quote Gray Taylor; Executive Director of PCATS, where he said that ACH programs lower the retailer’s exposure to payment data liability. Retailers are rightly concerned about the liability associated with payment data loss. Target is not the first to be a victim of this crime and watching the media reminds me of, with my apologies to the family; Kitty Genovese.

The debate about payment data is hardly new, who can forget the transition to 3dez. Target has announced that stolen PINS are safe behind a processor based encryption key, one win in the data protection business. Proponents of EMV, and by its extension, those involved with NFC mobile payments will point to Target as another justification for their systems. Meanwhile thieves will work on new man in the middle attack strategies. As long as the payment credential passes through the POS and processing network, it will be a target for theft.

Mobile payment is impacted as well. Data security is also a consideration as the retailer evaluates cloud-based mobile payment or NFC at the POS. Some proponents argue that the payment data can be stored on the secure element and be safe. The growth of mobile payment will capture millions of users as consumers choose mobile payment. Retailers have a unique opportunity to lower payment liability by shifting consumers to card and mobile ach decoupled debit.