The announcement that Best Buy was going to play nice with Apple Pay has boo birds eyeing the eventual demise of its designated archrival in the wave-and-pay race, the Merchant Consortium Exchange (MCX).
Karen Webster, CEO of Market Platform Dynamics, lays out that case in her PYMNTS.com column this week, and it’s very much worth reading. While Best Buy is still working with MCX’s fledgling CurrentC system, accepting Apple Pay is a blow to the MCX exclusivity touted by the phalanx of major retailers — including Wal-Mart and Target — who backed its creation three years ago.
There are other issues with MCX, too, including a well-publicized breach and the acquisition of its technology partner Paydiant by another potential rival, PayPal.
Further, Apple Pay is in place, with credit unions notably out front. CurrentC isn’t. That’s good for credit unions in at least one respect. Apple Pay is typically provisioned by cards that pay interchange. CurrentC is to ride the ACH rails, thus depriving the card brands —and their credit union issuers — of that treasured stream of non-interest income.
So can credit unions guarding the interchange hen house rest easy? “I’ve always shared her (Webster’s) skepticism about MCX, which at best always struck me as too good to be true,” says Callahan & Associates research vice president Chris Howard. “Before we get too excited, though, it’s important to note what wasn’t said.”
Howard says, “Because of the misalignment of incentives and the commodity nature of the acceptance processing business, interchange will continue to have shrinking margins.” Bottom line: Howard says interchange will live as a fee for service as long as the service represents value, but that it’s got no future as a source of significant net profitability.
Keys To The Kingdom
The comparison to the demise of Softcard (renamed from Isis for obvious reasons) is tempting. Both MCX and Softcard were created by major corporations looking to muscle in on payments: Softcard by the telecoms and MCX by retailers.
But there are some big differences. Softcard was a mobile wallet, an invention still in apparent infancy in terms of adoption. MCX is about paying for things at the store. We all do that. And therein lies another rub.
“The merchants still hold the keys to the kingdom,” says payments consultant Richard Crone. “Anybody who wants to play in this game has to gain merchant acceptance.”
For MCX that means a large group of national brands with large customer bases who don’t care what rails their payments ride. And that means CurrentC may have some time left to get the train rolling, although how much time, of course, is at question.
“For the past three years MCX has done little to shore up the product, and this will hurt their future if they don’t react quickly, based on the marketplace and the other players,” says Jon Rasmussen, vice president of card services at Suncoast Credit Union ($6.4B, Tampa, FL).
“Our members have choices. Do they understand the payments world? No. They’re concerned about the safety of their information due to all the breaches and will go with the best-marketed and proven product,” says Rasmussen, whose credit union is a major card issuer itself and has created a turnkey card service for other credit unions.
“MCX still has approximately 70 name brand retailers and has a built-in loyalty with consumers that from an issuer’s standpoint may make it hard to change consumer thinking,” Rasmussen says.