Why Companies Are Turning Away From Apple Pay
Apple Pay is giving more power to credit card companies. Some big retailers hate this.
That's why Wal-Mart, Target and others created a rival app: CurrentC. It's expected to be slower than tap-to-pay technology like Apple Pay, but CurrentC makes processing payments cheaper for retailers.
When you swipe your card at stores, retailers have to pay credit card companies between 1.5% and 3% of every transaction. With CurrentC, retailers might get away with paying a tenth as much.
That drop in costs is huge. Consider Wal-Mart, which earned $4 billion in profit on $119 billion in sales last quarter, a profit margin of just 3%. Cutting down on swipe fees could amount to hundreds of millions -- even billions -- more dollars in profit.
"This isn't a battle being fought over security or ease of use," noted John Zurawski, an executive at Authentify, which secures payments. "It's a battle being fought over interchange fees that merchants pay." Apple Pay runs on credit card networks. If it grows popular, Visa (V) and MasterCard (MA) would get stronger and fees would stick around. That's something retailers have been fighting for years.
By contrast, CurrentC runs on an old, little-known payment network called "the automated clearinghouse." It's cheaper for shops to process payments, because the system is generally slower. (It's the one used for direct deposit and social security benefits.)
"This is an effort by large retailers to see if they can invent a mobile payment solution that gets them out from what they perceive to be the financial industry's control," said Jason Kratovil, a bank lobbyist in the nation's capital.
These retailers are also rejecting Apple Pay out of fear that Apple's newer, safer payment system will let banks charge stores even more money for every swipe, according to Cherian Abraham, a mobile payment expert with Experian (EXPGF).
"Retailers have always looked at contactless payments with suspicion," Abraham said. "They're worried that as volume picks up, they'll see higher rates."
Then there's customer data. Shops want it. Apple Pay doesn't give it to them.
With Apple Pay, store registers never get your credit card number -- only an anonymous payment token. This chokes off the number one way retailers get customer data for tracking purchases and directly marketing to you afterward.
Meanwhile, CurrentC is at its core a coupon-and-rewards app. That gives companies lots of detailed information about what you buy and who you are.
CurrentC was developed by the Merchant Customer Exchange, a consortium of retailers that includes CVS (CVS) and Rite Aid (RAD). Joining MCX forces retailers to reject Apple Pay, which is why CVS and Rite Aid ditched it last week.
On a call with reporters this week, the group's CEO, Dekkers Davidson, said its members invested significant time and money to develop the alternative. They're not turning back now.
Zachary T. Brown