The alliance between JPMorgan Chase and the Merchant Customer Exchange represents more than an olive branch between two industries that have typically been at war over fee revenue — it's a result of a years-long transformation in how Chase approaches its relationships with the retail sector.
Of all the major issuers, JPMorgan Chase was in the best position to bring new terms to Walmart, Target and the other mega-merchants behind MCX. The retailers formed the consortium as a way to lower payment costs and retain customer data, and Chase was in the rare position to meet those demands on its own terms.
The ability for Chase to make these concessions has its roots in the deal between Visa and Chase Merchant Services, signed nearly three years ago. It was viewed as the first relationship in which the card network gave an issuer more leeway in negotiating deals with merchants.
Chase hasn't linked the Visa relationship to the MCX one, but the launch of Chase Pay demonstrates that the issuer is making good on its promise to enact changes that are beneficial to merchants. And this fact has U.S. merchants feeling optimistic about what could come next.
"It's been far too long that we have had to accept what is given to use by the dominant card networks," said Mark Horwedel, CEO of Merchant Advisory Group. "Presumably, with this arrangement, we have a much more level playing field between the issuer and the merchant … the merchant community wants to see the payments paradigm changed."
The closed-loop Chase Pay model, promising reduced fees, also serves as a much needed enrollment channel for MCX's CurrentC platform. In addition, Chase Pay takes the fraud liability away from merchants, a significant benefit to merchants that might have been saddled with extra liability by not meeting the card networks' Oct. 1 deadline for EMV adoption.
"When you look at our capabilities, we have a huge number of debit cards, a huge number of credit cards, we have a wholly owned acquirer – who better to drive the future of mobile payments than Chase?" said Eileen Serra, the chief executive of Chase Card Services at JPMorgan Chase, in an interview with American Banker, a sister publication of PaymentsSource.
Without a major ally like Chase, MCX runs the risk of falling into the same trap that another non-bank mobile wallet did. Softcard, the ill-fated venture of the major U.S. mobile carriers, had a combative relationship with companies like Google that could have been strong partners. In the end, Softcard folded and sold its assets to its rival, laying the groundwork for Google's relaunched wallet Android Pay.
Until recently, MCX looked like it might have begun the same spiral that doomed Softcard. Best Buy, one of MCX's most outspoken supporters, ended its exclusivity this year and committed to accept Apple Pay in its stores. for one, decided to accept Apple Pay in its stores, a move that made sense considering the company sells Apple products, but cast some uncertainty over the type of loyalty MCX was building among retailers.Shortly thereafter, MCX president Dekkers Davidson left the venture.
Though MCX has been testing its wallet in some markets, it hasn't yet made its rollout plans clear. The news that Chase Pay will support CurrentC payments in mid-2016 was not only a meaningful boost to MCX; it also is the first sign that a nationwide rollout is nearing.
"This is certainly a significant milestone, not just for MCX and Chase, but also for the mobile payments industry overall, as it continues to take shape," MCX said in an e-mail to PaymentsSource.
MCX is not disclosing any details about the fees its merchants pay under the Chase Pay deal. But Chase brings the MCX merchants much more than a fixed price tag.
"There is a synergy here that potentially could be a durable means of working around the card networks," said Brian Dodge, executive vice president of communications for the Retail Industry Leaders Association.
"It comes from the ubiquity of JPMorgan Chase, the largest issuer, and the enormous share of retail represented within MCX, and that could grow rapidly if others see value in it," Dodge added.
In a statement issued after the Chase and MCX announcement, Morgan Stanley advisors agreed that Chase is better positioned to create widespread consumer and merchant adoption than other mobile wallet ventures, especially on the e-commerce and in-app payments side, because of the issuer's 94 million credit, debit and prepaid card accounts.
Chase's incentive for merchants of fixed "bundled" pricing for Chase Pay transactions and the ability to plug into merchant loyalty and rewards programs will create even more interest among MCX participants, Morgan Stanley wrote.
Robert Barba contributed reporting to this story.