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Consumers' Digital Wallets: Apple Vs. Wal-Mart?
Friday, October 31, 2014 6:30 AM

A recent article in Reuter's says that with the development of a new mobile payment system, a group of retailers led by Wal-Mart Stores is aiming to upend a credit card market worth $4.5 trillion to control the transaction data generated at the checkout line.

Many payment experts said they are skeptical that the retailer-backed system, known as CurrentC, can gain traction, let alone thwart Apple Pay, a payment system launched by the iPhone maker last week. CurrentC is set to go live in 2015.

The retailers' main objective appears to be to push credit card companies out of the payment equation, or at least get them to lower their costs.

"CurrentC is built for retailers, to help them cut out interchange fees," said Nick Aceto, senior director at the payment technology firm CardConnect, referring to the fees paid by retailers to credit card companies when a shopper makes a purchase. "It's not a solution that will appeal to customers because it does not make their lives any easier."

That's not stopping the retailers from trying, and their consortium, the Merchant Customer Exchange (MCX), has clout, with $1 trillion in annual sales. In addition to Wal-Mart, its members include Best Buy and Target Corp.

MCX officials said CurrentC will work on any phone, integrating loyalty programs and payments into one transaction. While the group's focus is helping consumers, it hopes to shake up the payment system.

"MCX and the merchants that founded MCX are challenging ... an entrenched, very large status quo, a $500 billion ecosystem on the payments side," Chief Executive Dekkers Davidson said on a conference call Wednesday.

Davidson said MCX has made arrangements with two credit card companies and wants to partner with large issuers. But he did not say whether MCX would be willing to work with the likes of Visa Inc. and Mastercard Inc. and pay them conventional rates on interchange fees. Eventually, he said, "We expect that all cards will be welcome at CurrentC."

Wal-Mart, which has made little secret of its disdain for paying processing charges, is suing Visa for $5 billion for what it says are excessive card swipe fees.

Credit card firms typically charge 2 percent to 3 percent of the value of each transaction. Retailers paid $66 billion in credit-card-related fees in 2013, out of $4.5 trillion in spending tied to major U.S. cards, according to the Nilson Report.

In contrast to Apple Pay, which encrypts payment data and keeps it out of the hands of retailers, CurrentC connects directly to a customer's bank account. It will allow retailers to glean valuable data on spending patterns, which they can use to better target advertising and drive loyalty programs.

There would be no pooling of data across retailers, Davidson said, and shoppers can opt to remain anonymous. "Consumers will determine how they are marketed to or not marketed to," he said.

While Wal-Mart has said it has no plans to support Apple Pay, its rival Target has said it plans to use MCX for in-store checkout but is allowing Apple Pay for online purchases through its mobile app. Target is featured on the Apple Pay website.

MCX members have made up-front payments of $200,000 to $500,000 to join the group and signed multiyear agreements, according to people familiar with contract terms.

MCX said on Wednesday that when retailers join the consortium, they do so on an exclusive basis, but there are no fines if they leave the group.


Source:  Reuters