Competing retailers have formed a new joint venture, the Merchant Customer Exchange (MCX), to offer a mobile wallet of their own. The consortium believes their retail-based solution will deliver an innovative payment approach, but this may also be a way to jumpstart the slow-moving mobile wallet space as well as an effort to hedge against potentially increasing costs in an evolving payments market.
Over a dozen major retailers and businesses announced they have banded together to develop a mobile wallet solution to compete with the Google, Isis, Visa and MasterCard mobile wallets. The Merchant Customer Exchange (MCX) is a new group formed by several Fortune 500 companies that combine for over $1 trillion in annual sales. This includes major multi-channel retailers, restaurants, gas stations and grocers such as Wal-Mart, Target, Lowes, Best Buy, CVS, Shell and Darden Restaurants. Although a latecomer to the mobile space, their large-scale and network of major retailers can be a boon to customer adoption of their mobile wallet application. This could also urge competitors to get their acts together as mobile wallets from Isis, PayPal, Visa and MasterCard are yet to fully launch while Google Wallet is still limited with respect to compatible devices. While these mobile wallets will be directly competing with the MCX mobile wallet, the proliferation of more payment options brings benefits to consumers and merchants overall.
The MCX mobile application is currently under development with no public release date scheduled, although more details about the product offering, additional merchants and partners are expected to be announced in the coming weeks and months. According to their inaugural press release, the MCX mobile wallet will be open to “virtually any smartphone,” and will integrate consumer offers, coupons, promotions and retail programs. With Google getting a head start in the mobile wallet market, along with three more mobile wallets soon to be launched by Isis, Visa and MasterCard, MCX is entering an already crowded mobile contactless payments space. However, they may be doing so to protect the merchant’s best interests.
Interchange fees have been a topic of debate with continuing legal battles over the past two decades, as seen with a recently proposed $7 billion settlement related to unfair interchange practices. As the payment environment changes so can the costs of processing transactions, and mobile payments are beginning to change the ecosystem which can affect the merchant’s cost of accepting payment in two potential ways: through increased interchange rates and/or through the cost of additional services.
The MCX mobile application will support deals and coupons, which are generally add-on services merchants pay for. For example, any merchant with a MasterCard PayPass enabled terminal can accept Google Wallet Payments, but to support loyalty programs, customized offers and other features there are extra costs with their Google Tap and Save or Google Offers services. The major retailers behind MCX will likely realize cost savings from not paying a third-party to provide these services, and with their massive volume these costs can add up quickly. But the biggest concern for merchants is the interchange rate they will have to pay to accept these mobile wallet transactions, with or without the additional features.
When releasing their mobile wallet Google made a big point to say that merchants would pay Customer Present interchange rates, and the same rate as if the consumer used that card directly rather than within the mobile wallet. However, as a way to get more cards to participate in their mobile wallet Google recently opened their wallet to store and access credit card data in the cloud. Storing credit card details securely on the mobile device (in the Secure Element) required permission from each of the thousands of issuing banks that provide consumers with credit cards. While this was a barrier to supporting many different cards it did guarantee the merchant would process the transaction with the lower Customer Present interchange rate. Google isn’t abandoning the local storage of card data transmitted via NFC, but is offering the cloud based payment access method as well so more issuers and cards can participate, but these transactions would instead incur the higher Card Not Present processing rates.
Visa and MasterCard’s new offerings serve as both an e-wallet and mobile wallet so payment credentials will be stored remotely, but relative to in-store mobile wallet payments there hasn’t been mention as to whether they will access payment credentials stored on the tangible mobile device or stored remotely in the cloud. It is conceivable that these mobile wallets would choose the route of cloud-based access to payment credentials resulting in higher interchange fees. The mobile wallet space is still being sorted out and consumer adoption is still low, but over the coming months as Google Wallet grows and as Isis, Visa and MasterCard mobile wallets launch, consumer preferences will continue to form. By creating a mobile wallet of their own MCX may be able to get a large number of issuers to participate and allow their payment credentials to be securely stored within the mobile device guaranteeing lower Card Present interchange rates. If Visa and/or MasterCard were to emerge as the mobile wallet leaders and effectively charge Customer Not Present card rates for in-store mobile transactions major retailers stand to incur higher processing fees, but the MCX wallet may help avoid this.
For more information:
MCX Press Release: Leading Retailers From Merchant Customer Exchange to Deliver Mobile Wallet