Well, that was quick. Just as quickly as Apple Pay — the super-easy mobile payment tool available on the newest version of the Apple (AAPL) iPhone — became all the rage after launching less than two weeks ago, some serious competition pops up.
A consortium of retailers with a similar platform called CurrentC has pulled the rug out from underneath Apple Pay’s growth ambitions. How so? By turning off their ability to accept Apple Pay payments at their cash registers, and instead steering their shoppers to the CurrentC system.
The ploy is just another in a long list of underhanded efforts to get or maintain control of the lucrative retail payment pipeline. All these opposing players (Apple Pay and CurrentC aren’t the only ones) are the reason the whole easy-payment movement has thus far gone nowhere: consumers and retailers alike see too much fragmentation. Plus, why bet on a technology that might not be the accepted norm once this ridiculous race is over?
But which of these mobile payment platforms are apt to come out on top? It’s still not clear. One thing is clear, however — Apple Pay isn’t the mobile payments slam-dunk many users seem to think it is.
These are the major players you should know about in the emerging industry:
CurrentC is the reason Apply Pay hit a snag this week. It’s an app designed by a collection of retailers that bypasses credit cards entirely and instead posts charges straight to a shopper’s bank account, store-charge card, or gift card using a QR code. As such, CurrentC avoids the processing fees charged by the credit card companies.
The initiative is collectively managed by more than a dozen different retailers including Wal-Mart (WMT), Kohl’s (KSS), and Best Buy (BBY), who not only stand to save some money by circumventing credit card fees, but the app also allows the network of retailers to keep close tabs on all the purchasing habits of CurrentC users.
The catch for those merchants participating on the CurrentC program: It requires exclusivity, meaning retailers offering a CurrentC payment option can’t also take Apple Pay payments. That’s a risky requirement, though, as not many consumers want store credit cards or direct charges to their bank account.
Prior to July of this year, Softcard was known as Isis Mobile Wallet. To avoid any possible associations with the ISIS terrorist group, the service changed its name.
In any case, Softcard is a partnership between AT&T (T), T-Mobile (TMUS), Verizon (VZ), and Discover (DFS) that’s been in development since early 2011. It was and is a complete mobile payment solution, but not in a good way. Softcard doesn’t work on as many phones as the yet-to-be-discussed Google Wallet, nor does it work with most credit cards — American Express (AXP), Chase, and Wells Fargo (WFC) are the only credit service providers that support Softcard.
Those are no small impasses to adoption, but the biggest reason Softcard never got off the ground was its lack of a killer distribution channel like Apple and Google. With a limited number of consumers from the onset (not to mention the retailers’ tricky hardware requirements), the low transaction volume motivated merchants to wait for a more prolific mobile payment tool…or even a retailer-driven option like CurrentC.
It’s all about the size of the ecosystem, and Softcard still only has a tiny one.
Google Wallet — a mobile payment unveiled by Google (GOOG) in 2011 — debuted with almost as much fanfare as Apple Pay, largely because it was the first viable near-field communication (NFC) mobile wallet. With major credit card names like MasterCard (MA) and Citigroup (C) also on board from the onset as the facilitators of payments, Google Wallet started out with the flexibility and credibility that Softcard needed but never really got.
Even so, it didn’t take long for Google Wallet to get frozen out, not by retailers, but by mobile phone service carriers. Verizon, T-Mobile, and AT&T all managed to find legally justifiable reasons to prevent the app or service from functioning on their networks.
The mobile wallet now works on Android versions 2.3 or higher through most carriers and financial institutions, but Google Wallet’s adoption has suffered in the meantime. Regardless, the service is theoretically usable at 300,000 MasterCard PayPass merchants, which is the largest single merchant network out there today.
Last but not least, the newly-unveiled Apple Pay is easily the most flexible mobile payment option available to consumers, working with MasterCard, Visa (V), and American Express cards at 220,000 retailers through NFC technology on the iPhone 6. That’s technically fewer than the number of PayPass points that can process Google Wallet payments, though Google Wallet can still be a bit of an NFC challenge for consumers.
The upside for AAPL in Apply Pay is splitting a portion of the processing fees usually charged to merchants by credit card companies. It’s not much on a per-transaction basis, but a few pennies from millions of purchases adds up quickly.
Slapping the Apple name on the service, though, doesn’t guarantee the usual Apple-like success, even if every credit card company is on board. Retailers have to be on board too, since they’re the ones ultimately paying the processing fees. And with retailers like Best Buy, Wal-Mart, and Target (TGT) all deciding to go exclusively with the CurrentC system, retailers are still a major obstacle for Apple Pay.
And the Winner Is…
The web of relationships in the mobile payment ecosystem is intensely complex. These are the main forces at play:
- Phonemakers love taking a piece of credit card processing revenue, but hate how retailers can sidestep fees with in-house systems.
- Credit card companies love the phonemakers, but dislike how retailers are finding ways to circumvent fees.
- Merchants love phonemakers that make it easier for shoppers to spend money, but dislike the fact that most of those smartphone owners still prefer to use credit cards.
Despite these conflicts, each party needs both other parties to remain at least somewhat in the game. Think about it:
- Credit card companies rely on retail sales to generate fees.
- Smartphone makers need credit card service providers to split fees with them.
- Retailers must allow consumers to use the smartphone of their choice, or risk alienating potential customers.
If there has to be an eventual “winner” of this contest, however, it’s Apple Pay. Google Wallet could remain in a very close second place, though.
It’s not Apple’s payment technology that makes Apple Pay the favorite horse in this race, it’s Apple’s command of the practical logistics. It nearly has uniform participation from all the major credit card companies and several major banks, plus the underlying Apple Passport makes it easy to utilize several different credit cards as needed. And, let’s face it… the Apple name doesn’t hurt credibility either.
As for CurrentC: its stated purpose is simply to avoid credit card processing fees, but it’s clearly a consortium being built from the ground-up to monitor customer spending habits for future marketing purposes. Wary of a lack of privacy, consumers don’t want to share any more information than necessary with retailers. Apple Pay’s mobile payment process doesn’t reveal actual credit card numbers to retailers, keeping them fairly anonymous. This token-based approach will theoretically sidestep potential hacks of personal information.
Another downside for CurrentC: retailers have more to lose by not accepting Apple Pay and Google Wallet payments than they have to gain by only offering a CurrentC option. Apple and Google, because it’s dirt-cheap for them to make apps available, have little-to-no downside — even if the adoption rate of their mobile payment tools remains slow for the next few years. CurrentC, however, could cost retailers dearly if they alienate a large group of consumers by imposing an intrusive payment system on them.
In simpler terms, Apple Pay and Google Wallet give consumers options, flexibility, and protection, where Softcard and CurrentC take those things away. Consumers will always eventually do what’s best for themselves; it’s the retailers that must constantly earn business. Although it could still be years before mobile payments become common enough to move the needle in a meaningful way for Apple and Google, it’s worth the wait for both of them.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.