In the short history of mobile wallets, the most self-destructive thing a company could do was restrict a user's payment or loyalty options.
This was the downfall of Softcard, which was operated by mobile carriers that barred the rival Google Wallet from their handsets. It was the downfall of Bling Nation, which demanded that retailers use its own loyalty system. Even Apple has struggled to convince consumers to regularly use Apple Pay, the iPhone's exclusive contactless mobile wallet.
So what makes Chase Pay so different? Chase Pay is tied to the issuer's 94 million credit, debit and prepaid card accounts, representing half of U.S. households. Depending on the perspective, this means Chase's wallet either starts with — or excludes — half of the market. But it also has the flexibility to work in the foreground or background of any partner's digital wallet, bringing its massive cardholder base along with it.
"It is a space that isn't defined yet and we can make some bets, which we are with Chase Pay, or just sit back and watch everyone else and hope we can catch up later," said Gordon Smith, CEO of consumer and community banking for Chase, during the bank's 2016 Investor Day presentation this week.
"But we feel really good about Chase Pay and its potential," he added. "We think Chase Pay will prevail."
Even with no live product and a crowded market, Chase is pushing ahead aggressively. The issuer announced a deal to have Chase Pay accepted in the Starbucks app, and indicated that there will be more developments to come.
"I would hope that our investors would expect that with $750 million worth of spending [to promote and market payments], we would be trying to lead the next phase of that industry," Smith said.
Chase Pay is flexing its muscles only five months after it was created as part of the closed-loop ChaseNet payment network by landing a role with Starbucks, which has long been the marquee player in mobile payments with its own successful wallet app.
Chase Pay also has a place in the Merchant Customer Exchange's upcoming CurrentC mobile wallet, which is expected to be supported by the venture's mega-merchant backers. Chase also wants its Quick Pay person-to-person technology to be part of the MCX wallet over time.
But none of these deals gives Chase a true head start. The Starbucks app already accepts Apple Pay as a funding method, and many MCX merchants are beginning to support rival mobile wallets. Chase's cardholders may already be using these products, giving them little incentive to switch to Chase Pay.
"We know there is Apple Pay, Samsung Pay, PayPal and others, so we are at the point where it is going to become more complicated before it gets simpler, but it will become simpler," Smith said.
Despite the challenges it faces, Chase finds itself in an enviable position even before its product comes to consumers' handsets, said Richard Crone, chief executive of San Carlos, Calif.-based payments consulting firm Crone Consulting LLC. It also helps that millennials clearly are interested in mobile payment capabilities provided through their banks on their phones, he added.
"The stars are in alignment when Chase Pay launches because they will pre-populate their 94 million credit, debit and reloadable cards with that mobile pay app," Crone said. "They will have the single largest merchant acceptance network for physical payment of anybody, if they pull off the MCX deal. And with Starbucks, they have more everyday spend than anyone else."
The end result could be that Chase would "sign up to four times as many customers in half the time that Apple Pay, Samsung Pay, Android Pay or any others have been able to do," Crone said.
If all goes well, Chase Paymentech will have a good story to tell when it is time for major retailers to renegotiate their acquirer/processor contracts.
"The monopoly is going to be awarded to Chase because of the willingness of management to redesign the relationship with merchants and take a chance," Crone said.
Chase's change in attitude from being a market follower to a market leader began eight years ago when it dissolved its payment processing arrangement with First Data, said Brian Riley, principal executive advisor with CEB TowerGroup.
Since then, Chase has made some noteworthy strategic moves, such as a 10-year deal with Visa, launching ChaseNet and getting involved with MCX.
"Chase can do a lot of sand boxing in the background and not worry about constraints that other companies have, so this can be a long-term play for them," Riley said.
By finding partners in which Chase Pay can operate seamlessly, the issuer will benefit on the transaction side as well as on the back end in card issuing, Riley said.
Chase has not disclosed its fees related to Chase Pay, but Smith noted, "What we have tried to do is lay out a set of economics that we think will be very good for us and the merchant."
Chase is putting a lot of effort behind Chase Pay, but it won't rely entirely on that one product.
"We make our own bets with Chase Pay, but we also are partnering with other people," Smith said. "We are in Apple Pay and they have been a great partner for us, and we are in Samsung Pay, and we hope both are very successful."
Chase Pay will continue its focus on the key factors of lowering the cost of a payment, enabling loyalty and securing data for merchants, as well as the simple checkout, loyalty rewards and securing personal information that consumers want.
In the meantime, Chase points to its growing cardholder base as the foundation for future successes. It also intends to continue advancing the person-to-person technology with Quick Pay, while working with other major banks in that arena as part of clearXchange.