This week CVS and Rite-Aid turned off Apple’s mobile phone payment system in their stores. Apparently this was because of contractual obligations to support a yet to be released mobile payments competitor called CurrentC, created by a consortium led by Walmart. The reaction to CurrentC from tech blogs and twitter has been brutal.
From John Gruber:
What Apple gets and what no one else in the industry does is that using your mobile device for payments will only work if it’s far easier and better than using a credit card. With CurrentC, you’ll have to unlock your phone, launch their app, point your camera at a QR code, and wait. With Apple Pay, you just take out your phone and put your thumb on the Touch ID sensor.
Ben Thompson’s daily update has a good overview (subscription required). For now I’ll just take it as given CurrentC will fail. Which leaves open a more interesting question: what happens next?
Retailers want two important things Apple Pay doesn’t give them: 1) loyalty card information about the customer, and 2) a reduction of existing 2-3% credit card fees. Let’s take these one at a time. For loyalty cards, there’s no reason the existing system of physical cards can’t migrate to the phone. Today I pay for things with my credit card, then scan a second loyalty card to get my discount. No reason this can’t be replicated with a phone app. In fact once a loyalty app exists on my phone, with beacon technology the app could track my every step from the moment I enter the store. Will people give up their privacy for coupons? Sure. History shows most people will share their Mom’s maiden name, plus that of their elementary school pet for 5 cents off a bag of chips. That unfortunately applies to me as well.
The reduction of credit card fees is trickier. Right now Apple Pay is popular with banks because the phone’s fingerprint ID provides better security than physical credit cards, and leaves bank fees in place (though Apple gets a cut). That’s why Wells Fargo is offering a $10 or $20 credit to people who use Apple Pay. But as discussed in my post on biometric identity and payments, it’s possible “retailers will eventually gain an advantage in being able to request their preferred payment method at point of sale using Apple Pay.” That is to say, while banks currently have enough leverage to force retailers to disallow discounts based on method of payment, that leverage is eroded once Apple Pay becomes the payment brand. Lower fee debit cards or direct bank withdrawals could get you special deals via the loyalty app on your phone. Credit card companies may be happy right now about Apple Pay, but in a few years they may regret supporting it. One interesting possibility is retailer’s plans for mobile payments with CurrentC are an utter failure, yet they ironically get most of what they wanted by building on Apple Pay itself.
Update: I should have mentioned the retailers most against Apple Pay are part of the Walmart led MCX consortium that’s producing CurrentC. Plenty of others are fine with it, including Whole Foods, Walgreens, McDonald’s, Macy’s and Nike. In any case, I think the long term impact of Apply Pay (and other competitors in this space) will be to commoditize payments and ultimately drive down fees.