One week after its debut, Apple’s new mobile wallet is showing promise with consumers.
Apple’s rivals in the payments industry, meanwhile, are scrambling to prevent it from being too successful.
Even before Apple Pay was announced, a coalition of retailers refused to accept it in their stores. More than 50 companies make up this group, the so-called Merchant Customer Exchange or MCX, including global retail giants like Walmart, Best Buy and Gap Inc.
It’s not that these companies don’t want a mobile wallet to truly catch on with consumers. They see the mobile wallet as a way to help retailers understand more about their customers’ shopping habits and, potentially, let merchants avoid the high fees they pay when processing credit card transactions.
But they are working on building a competitor, CurrentC, a mobile wallet app that will connect directly to customers’ bank accounts or store-specific credit card. It won’t be available until 2015.
The problem is that under the terms of their MCX contractual agreement, they are not supposed to accept competing mobile payments products like Apple Pay, according to multiple retailers involved with MCX, who spoke on the condition of anonymity. If these retailers break their contracts, they will face steep fines for doing so, these people said.
Since Apple Pay was introduced a week ago, consumers have tried to use it in MCX members like Rite Aid and CVS. So those businesses have disabled the technology that supports Apple Pay.
For weeks, Walmart and Best Buy have said they will not support Apple’s payments product. And Target, which has partnered with Apple for online payments, does not accept Apple Pay in its stores.
At stake is the future of how consumers choose to pay for things, with technology companies, credit card businesses and retailers all fighting for a piece of what may become a $90 billion mobile payments market, according to projections from Forrester.
But the clock is ticking. If Apple Pay becomes a hit, MCX member retailers still waiting for CurrentC to begin could miss out on untold mobile payment transactions. Merchants also risk customer resentment if they continue to refuse Apple Pay. And if Apple Pay catches on, consumers may not be interested in a competing product.
“These retailers are in a real jam,” said Karen Webster, chief executive of Market Platform Dynamics, a payments industry consulting firm. “The last thing merchants want is ticking off their consumers over payment,” Ms. Webster said.
First announced in 2012, CurrentC is an effort by merchants to build their ideal mobile wallet. CurrentC is designed to link directly to a customer’s bank account instead of a credit card. This is a strategic move, analysts say; in bypassing the credit card companies, merchants can avoid the high fees that they are required to pay on each credit transaction they process.
“Retailers are looking for a combination of factors to adopt in stores,” said Mallory Duncan, senior vice president of the National Retail Federation, a retail advocacy group. “And that includes if it delivers a good price to hold down costs for them and their customers.”
CurrentC would also give retailers the ability to track shopping habits across the dozens of stores that belong to MCX, a data set that has traditionally been held by credit card companies, not merchants. If retailers had access to this data, it could be used to deliver relevant deals and loyalty points to consumers, which could increase these companies’ bottom lines.
That could also amount to in-store experiences centered on the smartphone, an area in which Walmart, one of the biggest partners in MCX, has increasingly dabbled in recent years.
“MCX is studying how to make sure all of the things that a customer wants to do in a store can be facilitated in a conscious way,” said Steve Mott, owner of BetterBuyDesign, a payments industry consulting firm.
Unlike Apple Pay, CurrentC is months away from beginning. When it is finally introduced, there is no guarantee it will take off.
Critics of CurrentC say it appears much more difficult to use than Apple Pay. Instead of contactless payment technology, CurrentC will rely on QR codes, a type of bar code that merchants scan to complete the transaction. It will also be an app that users must find and download from Apple’s App store.
Apple Pay, on the other hand, relies on so-called near-field communication technology built into every iPhone 6 and iPhone 6 plus. In contrast to using CurrentC, customers are not required to open an app or even unlock their iPhones when using Apple Pay.
Mobile payments are still very young in commerce and shopping. In 2013, mobile proximity payments in the United States amounted to $1.6 billion, according to eMarketer, an industry research firm. That is but a fraction of the $4.26 trillion spent in brick-and-mortar stores that year.
And while many industry experts expect mobile payments to rise over the next five years, there is no guarantee that consumers will find mobile wallets any more convenient than paying with cash or a credit card. Google’s payments product, Google Wallet, famously flopped after its introduction in 2011. PayPal’s mobile wallet options have failed to truly catch on as well.
Still, many say they believe that if any company is able to widely influence consumer behavior, it’s Apple. And if that is the case, MCX may have picked the wrong mobile wallet to back.
“When these contracts were signed several years ago, no one knew about Apple Pay, or what mobile wallets were going to look like,” Ms. Webster said. “It just didn’t have the same sort of consumer froth around it.”