MCX and the battle for mobile payments

Previously unknown outside the retail industry, the Merchant Customer Exchange (MCX) made waves as several participants recently disabled Apple Pay support.

MCX, the Merchant Consumer Exchange, previously lived in a quiet backwater of mobile payments. Founded by a list of member companies that includes some of the biggest names in retail, the companies pooled resources in an attempt to replace the existing credit card processing networks with a new system run by the member merchants.

The merchants' double trouble with plastic

Speak with anyone who owns a business that accepts credit cards, or even someone who has sold an item on an auction site that accepts credit card payments, and you'll likely hear about credit card fees. Essentially, the major credit card issuers and various related parties take a cut of every transaction performed using a credit card, generally around 2%-4% of the amount of the transaction. While this might seem like a relatively insignificant amount, losing even a couple percent on every transaction is a loss of pure profit for everyone from the occasional eBay seller to MCX founding member Wal-Mart, who processes millions of credit card transactions every day.

With mobile payments, the fees become even more onerous. Generally, credit card issuers charge more for "card not present" transactions, under the assumption that the lack of a physically present card introduces a greater risk for fraud. While this is not the case with secure mobile wallets and similar platforms, legal agreements lag technology as usual.

The other major problem for merchants is that they receive relatively little information about the person using the credit card, beyond a few digits of the card number and name printed on the card. The holy grail of payments is for merchants to be able to access a complete picture of a customer's buying behavior, and offer highly targeted promotions and coupons to entice that customer to buy more. With the current credit card system, card issuers know the intimate details of our shopping behavior, yet merchants know relatively little.

MCX's first product, a cross-member payment app, attempts to address both these concerns, providing mobile payment and a private processing network that would likely transfer funds from customers' checking accounts. Since no credit cards are involved, merchants can presumably save the processing fees (less the costs of building and maintaining their payment network), and also gather whatever data they want about transactions performed at participating retailers.

That pesky customer

Where MCX appears to fall down is that they've paid relatively little heed to the desires of the customer. Credit cards are a proven and fairly effective means of payment and provide strong consumer protections. Even with a high-profile merchant hack, consumers in the US are generally not liable for fraudulent purchases, and the direct consumer impact usually ends with the inconvenience of a new card and credit monitoring service. Disclosing banking information to merchants, many of whom have been victims of high-profile hacks, seems a significantly less savory process than getting an occasional new piece of plastic.

Demanding that consumers adopt an entirely new form of payment, disclose their bank account information, subject themselves to potentially intrusive marketing based on their purchase data, AND do all this for a payment form that's only accepted at a limited number of merchants seems like a tough pill to swallow from a consumer perspective, especially when the major purported benefit of the network is saving a bunch of massive companies' money.

The Apple Pay mess

What brought MCX into the limelight was a decision by several participants to disable the NFC (Near Field Communication, a short-range radio standard) function of their payment terminals. To an NFC terminal, an Apple Pay-enabled iPhone looks exactly the same as a PayPass-equipped plastic MasterCard or Google Nexus 5 with Google Wallet, and any of them can be swiped at an NFC-enabled payment terminal. Merchants that had no interest in Apple Pay, and those that were contractually prohibited from accepting "other" mobile wallets by virtue of participating in MCX, suddenly found themselves accepting it on launch day, alongside "official" launch partners.

In what likely looks like a completely boneheaded move in retrospect, CVS and Walgreens led the charge of MCX members that completely disabled NFC support in all of their stores, in favor of a payment method that doesn't actually exist yet. While suggestions that consumers boycott merchants for this maneuver seem a bit over-baked, the actions of the merchants seem completely deaf to consumer desires, and effectively shooting themselves in the foot by disabling a new technology that they were proven to support, even if it was unintentional.

The consumer wins

If nothing else, the MCX debacle has brought discussions around the future of mobile payments, consumer data protections, and payment security into the limelight. While the moves of MCX participants could ultimately kill a technology like Apple Pay, it's forcing consumers to consider how they'll interact with merchants, and how they expect to be treated by those merchants.

By Patrick Gray

Patrick Gray works for a leading global professional services firm, where he helps companies rapidly invent and launch new businesses. He is the author of Breakthrough IT: Supercharging Organizational Value through Technology as well as the companio...