Merchant Customer Exchange motivated by more than m-payments

Wednesday 30 January 2013 | 12:25 CET | Background

The ISIS Mobile Wallet and the Merchant Customer Exchange (MCX) are still going ahead. ISIS is trialing NFC mobile payment in Austin, Texas. The MCX, a group of leading retail chains, is yet to announce any detailed plans. ISIS is developing a NFC solution, while the MCX technology "will work on virtually any smartphone", which rules out NFC. Both are only partly about mobile payment and also target the payment card networks.

The US National Retail Federation (NRF) held its annual BIG Show in New York 13-16 January. ISIS was there to provide updates on the trials underway in Austin, Texas and Salt Lake City, Utah since 22 October 2012. And to claim their mobile wallet is the future of retail.

In the course of four days, the National Retail Federation made it abundantly clear that yes, retail is changing, retailers NEED an online channel, a mobile channel and a careful social media presence (“Truth. Brands are a part of communities beyond their control but not their influence”) to survive. FOA (Fear Of Amazon) was a term coined by one speaker. 


During the BIG Summit, no announcements were made on the MCX side. No trials yet. The Merchant Customer Exchange will develop a mobile payment system that allows consumers to pay for purchases directly from their mobile devices. The Merchant Customer Exchange is designed to enable merchants such as retailers, gas stations and restaurants to integrate their promotions into the payments system, which is set to be available on consumers' smartphone devices. The group has 26 members, with a combined annual retail revenue exceeding USD 1 trillion.

MCX members such as Wal-Mart, Target and Dunkin’ Brands Group are readying their own solutions and are probably not very keen on sharing their assets, or their customer data. The MCX would be pointless if it would not settle those issues though. But the negotiations could take more time than expected. The MCX is still looking for a CEO as well.

Bar codes

Details are scarce for now but it is clear that the technology should work on “virtually any smartphone”. It is clear that MCX will not develop NFC, but rely on 1-D or 2-D bar codes, which are displayed on the smartphone screen and then scanned by a retailer.

Payment based on bar codes is a closed loop payment, as opposed to open-loop payments over credit card payment networks. A customer activates the app, which generates a code for the scanner at the point-of-sale. The code is recognized, processed in the back office and confirmation is sent to the smartphone app.

The conditions for such payments are there. Smartphone penetration is high, and many shops already use barcode scanning, which can be upgraded to QR-code scanning. While traditional barcodes don’t carry enough data to make them unique, a 2D-code can be generated on the spot and carry unique transaction information. 

The reasoning for using scanable codes is obvious. The iPhone is the #1 smartphone in the US. Why would they choose a technology that’s incompatible with that? The bar codes go straight into the Apple Passbook app, which can show them on the lock screen.

The iPhone is quite dominant. AT&T said it activated 8.6 million iPhones in the fourth quarter, out of total sales of 10.2 million smartphones. AT&T is also a member of the ISIS Mobile Wallet Group, and sells as many as eight different ISIS-Ready smartphones. The figures show that ISIS is not where it wants to be yet, even when ISIS-Ready models include the HTC One, Samsung Galaxy S III and Sony Xperia TL.

Swipe Fees

Readying mobile payment and tapping into smartphone user data is only part of the MCX strategy. The retailers also want to use mobile payments to get lower credit card fees. The alliance is more than a little about a common enemy: the card issuers.
According to the NRF again, Visa and MasterCard alone take USB 30 billion per year in swipe fees.

The swipe fee for credit cards is generally about 2 percent and non-negotiable, the NRF says. “The schedule of fees is set centrally by Visa and MasterCard, with all banks that issue the cards agreeing to charge the same fees. Banks do not compete over the fees and refuse to negotiate with retailers no matter how large. NRF has argued before Congress that the practice is a violation of federal antitrust law the same as if retailers were to collude on the price of specific pieces of merchandise.”

The fee for debit cards has been capped at 22 cents per transaction since October 2011, but that is still double what it should be, the NRF says.

The NRF opposes a 7.25 billion-dollar anti-trust settlement between the federal government and the two card companies over those fees, saying that the settlement would not address the past and present excessive fees, and would not prevent fees from going up in the future.

The retailers obviously want to drive down the cost of payments. Offering mobile payment is an element of that strategy. Faced with this opposition, the card issuers have developed their traditional schemes to make them more real-time, and to include online, mobile online and mobile, with the banks as their natural allies.

Closed loop payments, such as MCX wants, take the card networks out of the equation. The war over mobile payments could lead to a choice for the card issuers: lower their fees, or see transaction volumes disappear. It could lead to lower fees, which is what the retailers want. After all, mobile payment will grow from a very low basis at best.

Two years

NFC mobile payment may be another two years in the making. While the perennial issue of control over the Secure-Element does not look to be settled any time soon, as it needs to align all parties involved, at least NFC penetration will reach sufficient levels in two years’ time, because all smartphones shipping in volume from 2013 are NFC-enabled, often featuring an embedded S-E.

Merchants will accept NFC mobile payment in the same way they will accept contactless debit/credit cards. The United States will see a move away from swipe-and-signature to EMV chip-and-PIN, but that process has its own dynamics.

So it must be noted that mobile payment is only part of a complex landscape, and that retailers might even sacrifice it in the short term for a different long-term gain: lower swipe fees. Or it could be used against yet another foe. Not just FOA, but also
FOG (Fear of Google) could be justified, given the tech company’s leading position in search, display advertising, location-based services and mobile advertising, not to mention control over the Android OS and Motorola Mobility. 

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