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Target's surrender to Apple Pay shows the struggle of retailer-only wallets

When Apple Pay came to market in 2014, it faced severe backlash from retailers who had already been burned on the promise of NFC and didn't want any part of Apple's mobile wallet. In time, major names such as Best Buy, CVS and Rite Aid caved, but two major holdouts remained: Target and Walmart.

As of Tuesday, one of those holdouts has given in to the march of NFC technology, as Apple, Samsung, Visa and Mastercard announced that Target will begin accepting their mobile wallets and contactless cards.

The news may seem overdue — Target and Walmart's multi-retailer mobile wallet, CurrentC, was abandoned in 2016, and other CurrentC merchants have accepted Apple Pay for years — but this isn't a story of two Goliaths battling it out. It's a tale of one Goliath beating multiple Davids — slowly, methodically, and one at a time.

"The bloom clearly has come off mobile payments the last couple of years," said Steve Mott, principal of BetterBuyDesign payments consulting firm. "This would have been a much more interesting announcement a couple of years ago."

Target shoppers
Shoppers walk towards a Target Corp. store at City Point in the Brooklyn borough of New York, U.S., on Wednesday, July 19, 2017. Bloomberg is scheduled to release consumer comfort figures on July 20. Photographer: Mark Kauzlarich/Bloomberg

However, because Target will now accept Apple Pay, to properly follow card brand rules, it must also accept other NFC wallets. That has created concerns for merchants in the past, Mott said.

"Apple is easy to work with because it does not market customer data as part of its business model," Mott said. "But merchants have to create contracts with other providers that would be satisfactory to them. Merchants have to accept all NFC wallets, by rule, but the jury is still out on whether they need them all, with options like QR codes, and we haven't resolved those issues yet."

Target confirmed it was accepting Apple Pay, Google Pay and Samsung Pay as part of its move to also accept contactless cards.The retailer did not provide insights into the process of establishing contracts with each provider regarding data handling.

"We’re always testing new ways to make shopping easier for our guests, and offering mobile payment and contactless card options at checkout is just the latest step we’ve taken to help guests save time when they make their Target runs," Target spokesperson Jill Lewis said. "We’ve been offering mobile payment for REDcard holders with Wallet in the Target App for more than a year, and we have been very pleased with the adoption and guest response."

Typically, NFC wallets are locked to a specific manufacturer: Apple Pay for iPhones, Samsung Pay for Samsung handsets, and Google Pay for the broader Android ecosystem. Essentially, consumers use the NFC wallet that comes with their phone and are given little other choice.

This runs counter to the narrative that there will be no winner in the mobile wallet race, and that consumers will choose whichever wallet app they prefer for a given situation, much like choosing a different card for different expenses based on rewards.

The success of retailer apps such as the Starbucks app fueled this narrative, but those successes were often specific to the retailer's case and did not demonstrate a broader consumer preference for retailer-only apps. Starbucks has long said its app's value hinged on the success of its plastic gift cards, for example.

Target debuted its proprietary bar code-based Target Wallet in late 2017 after two years of testing and research, establishing it as a complement to its Cartwheel digital coupons and discount offer feature in its mobile app. The creation of Target Wallet proved the retailer had something entirely different in mind other than being tucked away inside another company's NFC wallet app.

Target shoppers using Target Wallet scan coupon bar codes in the store, and generate a new bar code on the phone to be scanned at the POS to complete the transactions to a linked Target Red card. Target has also long accepted Apple Pay on mobile devices since 2014, but did not support the NFC version in its stores.

Merchant groups have long advised retailers to be prepared to accept all forms of payments at the point of sale, especially following the collapse of the Merchant Customer Exchange (the multi-retailer venture behind the CurrentC wallet).

Chase gobbled up the MCX's technology for its own Chase Pay operations, effectively ending the retailer's two-plus years of testing the water for their own branded wallet to operate through ACH, eliminate card fees and keep the customer data in the merchant coffers.

Wallets operating through QR code include PayPal, Chase Pay, Target Wallet and Walmart Pay. China's Alipay and WeChat Pay also use QR codes.

Of the original MCX members, Walmart remains the top retailer that doesn't accept competitors to its own Walmart Pay at the point of sale.

For its part, Target's pursuit of developing a mobile wallet likely suffered a delay when it was thrust into the data breach spotlight in 2014. At that point, accepting the EMV chip card became a top priority as the company sought to establish that technology at the POS even before the liability shift from magstripe to chip took place in late 2015.

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