When the California-based tech company launched Apple Pay, several retailers hated the program. Meaning, not everyone is holding hands and singing “Kumbaya” over Apple Pay.
Apple Pay is a mobile payments system that allows iPhone 6 and iPhone 6 Plus owners to use their devices as digital wallets for their credit and debit cards. The cards are stored in the iPhone’s Secure Element chip, while a "unique Device Account Number" and a “transaction-specific dynamic security code” are wirelessly transmitted to a retailer via Near Field Communications (NFC) technology.
In practice, all a shopper has to do to make a purchase is wave his or her iPhone near a store’s NFC reader while holding a finger on the device’s Touch ID fingerprint sensor. Thanks to its ease of use and advanced security features, Apple Pay should have been welcomed by many consumers and financial institutions. So, what’s the problem?
Many of America’s biggest retailers are members of the Merchant Customer Exchange (MCX), a merchant-owned mobile commerce network that is fiercely opposed to Apple Pay. MCX is currently developing its own mobile payments system called CurrentC that, unlike Apple Pay, allows users’ purchases to be tracked for loyalty rewards programs and other marketing purposes. However, MCX members aren’t just opposed to Apple Pay because it competes with its own mobile payments system.
Although Apple Pay brings a different level of convenience and security for consumers, from the merchants’ point of view, it is essentially the same as making a traditional credit card purchase. This is because Apple Pay still provides the credit card networks with a way to charge retailers a fee every time a purchase is made.
According to Re/code, this bone of contention between the retailers and the credit card networks was recently highlighted in an incident at the Money2020 payments industry conference.
At the conference, Walmart executive Mike Cook questioned Visa executive Jim McCarthy about why the credit card networks charge a lower "card-present" transaction fee for in-store Apple Pay purchases and a higher rate for in-app Apple Pay purchases.
According to Re/code, credit card networks have historically charged merchants lower fees for card-present transactions because having the physical card was believed to reduce the risk of fraud. However, since Apple Pay purchases made in brick-and-mortar stores and through apps are essentially using the same method, Cook wanted to know why there was a difference in the fees charged by the credit card networks.
After McCarthy gave several technical reasons about why the fees are different, Cook posed a rhetorical question to the Visa executive that revealed how Walmart sees the issue: "Because it’s a rule that you all make?" asked Cook in a video provided by Re/code.
Since the credit card networks determine their own criteria for what level of fees the merchants are charged, it is not surprising that retailers like Walmart see the credit card fee system as inherently unfair. This fundamental opposition to credit card fees is also why MCX members are so vehemently opposed to Apple Pay. It should be noted that the pilot version of CurrentC only allows for merchant gift cards, debit cards, and personal checking accounts to be used as forms of payment.
By linking directly to a user's checking account, merchants are hoping to cut credit card networks out of the loop. Although MCX has promised that "additional forms of payment, including credit cards" will be added at a future date, the consortium of merchants may be hoping to use CurrentC’s popularity as a way to gain leverage over the credit card networks in future fee negotiations.
This opposition to credit card network fees is also why MCX forbids its members from offering alternative mobile payments options to their customers. Recently, CVS and Rite Aid — both MCX members — made headlines when they stopped entertaining Apple Pay after briefly accepting it when the system first rolled out. MCX can’t afford to let a mobile payments system that still pays fees to credit card companies to gain traction if it wants its own system to succeed.
Since CurrentC has yet to officially launched, it may be a while before a clear winner emerges from this fight over the future of mobile payments. However, so far it appears that Apple Pay has the upper hand, since it beat CurrentC to the market and is focused on consumer concerns like convenience and security, rather than merchant fees. While it’s unclear which system will come out ahead in the end, there is one thing consumers can count on: Don’t expect to be able to use Apple Pay at Walmart stores anytime soon.
Apple Pay is a mobile payments system that allows iPhone 6 and iPhone 6 Plus owners to use their devices as digital wallets for their credit and debit cards. The cards are stored in the iPhone’s Secure Element chip, while a "unique Device Account Number" and a “transaction-specific dynamic security code” are wirelessly transmitted to a retailer via Near Field Communications (NFC) technology.
In practice, all a shopper has to do to make a purchase is wave his or her iPhone near a store’s NFC reader while holding a finger on the device’s Touch ID fingerprint sensor. Thanks to its ease of use and advanced security features, Apple Pay should have been welcomed by many consumers and financial institutions. So, what’s the problem?
Many of America’s biggest retailers are members of the Merchant Customer Exchange (MCX), a merchant-owned mobile commerce network that is fiercely opposed to Apple Pay. MCX is currently developing its own mobile payments system called CurrentC that, unlike Apple Pay, allows users’ purchases to be tracked for loyalty rewards programs and other marketing purposes. However, MCX members aren’t just opposed to Apple Pay because it competes with its own mobile payments system.
Although Apple Pay brings a different level of convenience and security for consumers, from the merchants’ point of view, it is essentially the same as making a traditional credit card purchase. This is because Apple Pay still provides the credit card networks with a way to charge retailers a fee every time a purchase is made.
According to Re/code, this bone of contention between the retailers and the credit card networks was recently highlighted in an incident at the Money2020 payments industry conference.
At the conference, Walmart executive Mike Cook questioned Visa executive Jim McCarthy about why the credit card networks charge a lower "card-present" transaction fee for in-store Apple Pay purchases and a higher rate for in-app Apple Pay purchases.
According to Re/code, credit card networks have historically charged merchants lower fees for card-present transactions because having the physical card was believed to reduce the risk of fraud. However, since Apple Pay purchases made in brick-and-mortar stores and through apps are essentially using the same method, Cook wanted to know why there was a difference in the fees charged by the credit card networks.
After McCarthy gave several technical reasons about why the fees are different, Cook posed a rhetorical question to the Visa executive that revealed how Walmart sees the issue: "Because it’s a rule that you all make?" asked Cook in a video provided by Re/code.
Since the credit card networks determine their own criteria for what level of fees the merchants are charged, it is not surprising that retailers like Walmart see the credit card fee system as inherently unfair. This fundamental opposition to credit card fees is also why MCX members are so vehemently opposed to Apple Pay. It should be noted that the pilot version of CurrentC only allows for merchant gift cards, debit cards, and personal checking accounts to be used as forms of payment.
By linking directly to a user's checking account, merchants are hoping to cut credit card networks out of the loop. Although MCX has promised that "additional forms of payment, including credit cards" will be added at a future date, the consortium of merchants may be hoping to use CurrentC’s popularity as a way to gain leverage over the credit card networks in future fee negotiations.
This opposition to credit card network fees is also why MCX forbids its members from offering alternative mobile payments options to their customers. Recently, CVS and Rite Aid — both MCX members — made headlines when they stopped entertaining Apple Pay after briefly accepting it when the system first rolled out. MCX can’t afford to let a mobile payments system that still pays fees to credit card companies to gain traction if it wants its own system to succeed.
Since CurrentC has yet to officially launched, it may be a while before a clear winner emerges from this fight over the future of mobile payments. However, so far it appears that Apple Pay has the upper hand, since it beat CurrentC to the market and is focused on consumer concerns like convenience and security, rather than merchant fees. While it’s unclear which system will come out ahead in the end, there is one thing consumers can count on: Don’t expect to be able to use Apple Pay at Walmart stores anytime soon.
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