Quick Thoughts – Expect MCX and Apple Pay to Partner
Bob Carr, the CEO of HPS, has commented that Apple Pay will make it difficult for MCX to sustain its policy of requiring members to accept only the CurrentC mobile wallet: “I don’t see how that [the exclusivity policy] survives. I think Apple Pay kills that entire concept because consumers will pay with what they want to pay, and with the device they want to pay with. Is MCX going to be able to get away with $1 trillion of the economy [annual retail purchase sales at MCX members] being excluded from PayPal and Apple Pay?”
We agree that MCX will not be able to maintain its exclusivity policy as it extends the CurrentC acceptance brand from the large founding retailers to smaller retailers and, of course, Target already accepts Apple Pay for in-app payments although not for in-store payments. Specifically, after rolling out nationally among the large founding retailers in the first half of 2015, we expect MCX to broaden payment methods to include Apple Pay in early 2016 using NFC-technology where it is available and QR-code technology where it is not.
Furthermore, we expect Apple Pay to broaden its payment method and interfaces to include the CurrentC acceptance brand and QR-code transport, and we note that V has already announced it will be supporting QR-code contactless payments. In both cases, the wallet providers (whether Apple Pay or CurrentC) do not want to alienate consumers by failing to support a preferred payment form. The MCX exclusivity policy was, we believe, intended to create a window of opportunity for CurrentC to launch and not a long-running approach.
Ultimately, as described in our 9/18 note “Apple Pay, Passbook, and CurrentC from MCX”, MCX members will need to win the steering battle for CurrentC over network-branded alternatives so as to achieve the goal of reversing the mix-shift in tender to high-cost network-branded credit cards. They are well-positioned to do so given that merchants are advantaged providers of rewards: they source rewards at cost-of-goods not full-retail price; the affiliation of rewards with a retailer, rather than bank, brand generates lift in visit-frequency and ticket-size; and retailers own the SKU-level data which will likely improve the targeting and personalization of rewards.
Even in an open-wallet environment, we expect CurrentC to account for 20% of US tender at MCX member merchants over 5 years and see FIS, as the network partner to MCX, as a likely winner as MCX becomes the bridgehead through which it establishes a competing (albeit white-label) network to the existing (branded) incumbents.