A number of large retailers are pushing back against Apple Pay, making clear the power merchants wield in the developing mobile payments market.
The retailers that have blocked Apple Pay or refused to put in the necessary technology include Walmart, CVS, Rite Aid and Best Buy. Though these merchants are part of their own mobile wallet initiative, the Merchant Customer Exchange, there are bigger issues at play than simple competition.
"Many of these merchants have been pushing back on swipe fees for years and feel that their qualms have not been answered by the issuers and networks," said Jordan McKee, a senior analyst at 451 Research. "They see the transition to mobile as the opportune time to equal the score."
Apple charges a fee to card issuers, but its business model largely ignores retailers, providing no incentive to accept Apple Pay besides certain security measures such as EMV and tokenization, which many merchants are already planning to adopt within the next year.
The Merchant Customer Exchange, or MCX, plans to launch its own mobile wallet called CurrentC in 2015. The wallet would use QR codes, which can be displayed on the phone's screen and thus would not require the consent of device makers or carriers, as Near Field Communication payments typically do.
MCX's members also include Target, 7-Eleven, Dunkin' Donuts, Sears, ExxonMobil, Gap and many others.
"MCX has mobilized a fleet of the most powerful retailers in the U.S., giving the initiative considerable bargaining power," McKee said. "A large group of high-volume merchants oriented around a common goal, with a collective, deep-seated hatred for swipe fees is clearly something that that payments industry cannot completely disregard."
Denee Carrington, a Forrester Research analyst, said merchants may have difficulty accepting non-CurrentC payments because of non-compete restrictions, though MCX member Target is supporting Apple Pay. Rite Aid and CVS, two MCX members, initially supported Apple Pay, but backed out over the past week. MCX and Apple did not return queries for comment by deadline.
"All merchants have control over their checkout experience, and successful ones have a solid customer base," Carrington wrote in a September research note. "As such, they will be instrumental in advancing the adoption of mobile payments and digital wallets but also deciding which solutions live or die."
Despite the enormous buzz surrounding its launch, Apple Pay has suffered many challenges.
Wallet providers can succeed in building name recognition and consumer interest, but merchant preference over issues such as data access, checkout speed and integration of loyalty programs can play a role in which mobile pay initiatives merchants prefer, Carrington said. Google Wallet and Square have both made many changes to their mobile payment systems to placate merchants.
Apple Pay and CurrentC, in their current forms, operate on fundamentally different technology; a merchant that refuses to install NFC readers for Apple Pay could still accept CurrentC, which uses QR codes. CurrentC also has the advantage of moving money directly from bank accounts to execute payments, rather than managing the added expense of credit cards.
Merchants that support Apple Pay also bear much of the responsibility for making sure Apple's wallet works properly, while suffering potential damage to their brands if anything goes wrong.
Merchants have rejected mobile commerce technology before. Bling Nation, a contactless payment system that used NFC stickers attached to phones, shut down in part because the merchants refused to adopt its loyalty program.
But with that said, merchants are taking a risk by pushing back against Apple, analysts said.
"While their disdain for the card brands is understandable, their approach to the situation is incredibly misguided," McKee said. "MCX should be competing on the basis of its value proposition, not by pursuing a scorched earth policy that attempts to stifle the competition. It's a classic case of businesses acting on their own self-interests while completely disregarding the consumer."
Merchants will have to continue to accept a customer's credit and debit cards from banks, and customers will have a hard time understanding why their card from their wallet is accepted but the same card in their Apple Pay mobile wallet is not, said Thad Peterson, a senior analyst at Aite Group.
"And, I would expect that an Android equivalent to Apple Pay, be it Softcard, Google Wallet, or someone else will emerge so that a significant percentage of mobile devices are NFC enabled within the next three years, again using existing payment processes and rails," Peterson said.
There is also minimal upside to rejecting Apple Pay for the merchants, said Michael Misasi, a research analyst for Mercator Advisory Group.
"Apple Pay is only available to a relatively small number of consumers, and CurrentC should be available to compete as early as next year," he said. "Meanwhile, Apple could decide to remove the CurrentC app from the App store at any time, which would have a devastating impact on that application's adoption."