Apple vs. MCX part II – Crash course

MCX is likely to fail unless something changes.

• The combined power of Apple and the major credit card companies is likely to exert so much pressure on MCX that something will have to change.
• Retailers have problems with credit cards. The credit card companies charge them a fee every time a card is used which eats into their wafer thin operating margins.
• As a result the Merchant Customer Exchange (MCX) was created by a consortium of US retailers to try and create an alternative payment system where the fees would no longer be charged.
• This involves the use of store cards or direct debit on the customer’s bank account.
• To date the payment experience has been the same for everybody with the customer presenting a card and signing a slip of paper or entering a PIN.
• This has meant that MCX was offering a payment experience that was equivalent to everyone else giving a level playing field.
• However, Apple has thrown a huge spanner in the works by creating a payment system that is much easier for users and that can be used any NFC enabled point of sale device.
• This is a huge problem for MCX because it threatens to completely undermine all its efforts to move transactions in its members’ stores onto its systems.
• MCX is developing its own mobile-based payment system called CurrentC but this has two huge disadvantages compared to Apple Pay.
  • First. It is a cumbersome QR Code based system that is more effort than making the payment with a piece of plastic.
  • Second. The merchant has to pay a higher fee to use CurrentC than either Apple Pay or a normal credit card.
  • This is because payment via CurrentC is classified as a “card not present” transaction which attracts a higher fee due to the increased risk of fraud.
  • With the creation of its very secure system, Apple was able to have Apple Pay transactions classified as “card present” transactions which are cheaper.
  • All other forms of in-App purchase also attract the higher fee giving merchants a strong incentive to adopt Apple Pay.
• These two disadvantages alone are almost guaranteed to ensure that CurrentC fails.
• The biggest problem with MCX’s strategy is that it is focused on the welfare of the merchants and does not seem to care about the customer experience.
• This is exactly the kind of thinking that has hobbled the take-off of mobile based payments for the last 10 years.
• This is where the huge risk lies. If customers start going to stores that accept Apple Pay instead of MCX member stores then there is a huge problem.
• In the meantime, something has to change as MCX’s current course is almost certain to lead to failure.
• If MCX is smart, it will quickly move its payment processing infrastructure to support Apple Pay because then it can achieve its own aims while keeping the consumers happy.
• This would have the benefit of circumventing the fees charged by the credit companies as well as giving consumers and excellent user experience.
• The consumer is king and there will always be alternatives where he can use whatever payment system he desires.
• The sooner MCX realises that the financial well-being of its members depends on happy consumers, the better its chance of breaking Visa and MasterCard’s stranglehold on payments processing.