Mobile Wallets: Structural Advantage of MCX over Apple, Google, PayPal, and Square


Mobile wallets are on the cusp of mass adoption: the WSJ reports that AAPL is looking to allow consumers to use iOS mobile devices to pay for physical goods outside Apple stores with their iTunes accounts; Google Wallet will by-pass carrier control by host card emulation (effectively a secure-element-in-the-cloud); and Isis is this month making available NFC-enabled iPhone cases.

These wallets, along with those provided by Square and PayPal, will gain traction among small and specialty merchants by offering e-coupons and otherwise improving the shopping experience (e.g. pay-with-your-name by Square, skip-the-line and order-ahead by PayPal, and BLE “Beacon”-enabled location-based marketing by PayPal and Apple), but will run up against a structurally-advantaged MCX wallet at many mass merchants. These MCX advantages are:

Low Acceptance Cost: MCX will not use the existing card networks (but rather a proprietary infrastructure in partnership with FIS). As a result, it will not pay interchange and premium network fees so that acceptance costs will be nearer 4 cents/transaction versus 1% of transaction value (so 40 cents on a $40 ticket) for PayPal, for example; savings will be recycled to consumers.

Low Customer-Acquisition Cost: Cashiers will prompt consumers to enroll and use MCX wallets just as they presently do for Target Red cards.

Access to In-Store, SKU-level Payments Data: Only merchants have access to these “hard” payments data which are valuable for targeting and personalizing e-coupon offers; indeed, a core objective of MCX is to protect these data from third-parties such as GOOG.

Brand Benefits: MCX merchants can outbid competing mobile wallets for customer engagement because of brand benefits. For example, Target offers a 5% discount to customers using the Target RED card (versus an average acceptance costs for Visa debit and credit cards of less than 1.5%) because the brand benefits accrue to Target, not a third-party.

As Apple and others build consumer awareness and trial of mobile wallets, we expect MCX members to act aggressively to shift transactions to the MCX platform. MCX sees the transition to mobile as a one-time opportunity to create a more merchant-friendly payments environment, and we do not expect members to squander it by accepting wallets that replicate existing bank-friendly rules and clutter the point-of-sale (see below): “The existing rules that are in place for card-based payments are not going to be acceptable for mobile-based payments” Jamie Henry, Payments Director, WMT. 

Please see our published research for the full note.

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