Best Buy's move to accept Apple Pay in its stores is the clearest public sign yet that the Merchant Customer Exchange has radically altered its vision of and ambitions regarding a retailer mobile wallet.
MCX's CurrentC wallet was designed to lower interchange for merchants through the use of a cloud-based mobile wallet, while keeping merchants in control of consumer data. When Apple Pay launched last year with a structure that allied with the banking industry's interchange pricing structure and offered a bump in security it shifted the very nature of the market that MCX was developing for.
Best Buy is still very much an active MCX member. But it is also "a long-time, strong partner" of Apple, as Apple CEO Tim Cook stated during this week's earnings call. Though Best Buy was a major holdout in Apple Pay's early days, its change of heart opens the door for any retailer even MCX founders Walmart and Target to support Apple's wallet in addition to their own (Target, like Best Buy, already accepts Apple Pay for in-app purchases).
So where does this leave MCX and CurrentC? Rather than demand exclusivity and compete against the very banking infrastructure that its retailer members rely upon, MCX must remove its limitations to make sure its mobile wallet is an option and a compelling option for the retailers that are already on board with Apple Pay or looking to join soon.
The MCX of today is radically different from the MCX that formed in 2012, said payments consultant Todd Ablowitz, who attended some of the group's earliest meetings.
"At the time they started this, their hope was to run the table in mobile payments. They wanted to lock up big retailers," said Ablowitz, who today is president of The Double Diamond Group. "But the nature of a consortium makes it move slowly. By any measure, MCX has moved slowly. Now, with the benefit of seeing Apple in the market and the quality of its offering, it seems almost silly to expect a retailer to be exclusive to MCX."
Steve Mott, principal with payments consultancy BetterBuyDesign, said the idea of exclusivity made a lot more sense in the beginning, when MCX's contracts were written and signed.
"The exclusivity idea was a logical way to help get off the ground with a new product in the heady period of the first generation of mobile wallets. It would be no different with a shared loyalty program--why support competing offers? That makes no business sense," Mott said. "But now, knowing that the consumer adoption of mobile wallets and payments is a long, uphill climb for everyoneincluding Applethere is less need to incubate or protect a nascent system. That plus Apple, which gets a free ride on its behavior from many people, clearly is putting pressure on merchants that naturally want more allocations of Apple products to sell in their stores."
MCX's goal must be to coexist with other wallets, rather than push them out of the market, Ablowitz said.
"The mobile operating system manufacturersApple and Googlethey will win. This isnt in question. They will win," Ablowitz said.
Reached last night for comment following Apple's earnings call, MCX confirmed that Best Buy was still a "strong MCX partner and supporter," according to a statement by Scott Rankin, MCX's chief operating officer, in an email provided by the MCX public relations team. "As we have stated in past, we are of the firm belief that there need to be at least two to three major players within the mobile payments ecosystem for it to succeed."
MCX did not provide a separate interview when reached for this story. Walmart and Target did not provide comment.
Ablowitz predicts the MCX retailers will want to become a fulfillment option on Apple Pay itself. "MCX would be foolish to not be accepted on Apple Pay," he said. "Do they really care what the presentation method is?"
It would be remarkably difficult for MCX to negotiate any type of collaboration with Apple without first agreeing to let its merchants accept Apple Pay. Apple is notoriously heavy-handed in its dealmaking; even though it designed a mobile wallet that plays nicely with the existing banking system, at least one banker, Citizens Bank SVP and head of debit and emerging markets Michael Battagliese, described Apple's terms last year as "the most one-sided agreement I have ever seen."
It's no different for retailers, though retailers would also benefit from the added security in Apple Pay, which uses EMV, tokenization and biometric fingerprint recognition.
MCX has stated in the past that it is open to changing its technology to address market needs, so it may eventually launch with similar security mechanisms in place. But matching Apple feature-for-feature won't be enough for it to survive.
Thad Peterson, a payments senior analyst with Aite Group, questioned whether MCX's new strategy can be effective if its only differentiators are loyalty and discounts. Such a strategy would require a huge change in the culture of MCX's biggest retailers.
"I don't believe they are going to provide (meaningful) discounts or provide offers. It's so counter to their retail strategy," he said, adding that "they have never offered (meaningful) discounts in the history of Walmart."
John Adams contributed reporting to this story.