INTELLIGENT PAYMENTS FOR BANKS, MERCHANTS, AND MERCHANT SOLUTIONS PROVIDERS

MCX Has Given Up the Battle, but not the Fight

In a statement released on May 16, Merchant Customer Exchange (MCX) CEO Brian Mooney announced that MCX had indefinitely postponed the launch of its CurrentC mobile wallet, that it had laid off approximately 30 employees, and that moving forward it would focus on partnering with financial institutions. This could mean that MCX is dead, but we must still consider the underlying principles that lead to the creation of MCX and realize that the market conditions that lead to MCX’s creation still exist, that MCX’s creators remain committed to MCX’s mission, and that MCX achieved at least one major win during its existence. These three factors combine to mean that while MCX may be dead in its current form, we can expect it to return in a new one.

The Market Conditions

There are two market conditions that compelled MCX merchants to form a consortium to fight against common enemies. Those conditions are:

  1. The digitalization of commerce
  2. Interchange pricing

The Digitalization of Commerce

First, consider your own Amazon purchase habits and how much they have grown over the past five years. Consider how that must rip apart the hearts, minds, and P&Ls of Wal-Mart, Target, and Best Buy executives. Then consider how they must combat the trend to bring those purchases back to their stores. They simply must capture more of your attention. They must engage you when you are at home planning purchases as well as when you are in-store buying on impulse. They must make it extremely easy to find products that you value and make buying them a snap. They must provide a pleasurable shopping experience, and they must reward you for coming back. They must engage you at all times, through every possible communications channel and at every point in your buying process, including checkout. They must capture you in a digital embrace, surround you with the things that interest you most, make it easy and rewarding to buy those things, and entice you to come back.

They can’t accomplish any of these things if they don’t even know who you are. When you pay with cash or a bankcard you are effectively anonymous. Capturing your identity and checkout history and providing greater engagement during checkout are critical for long-term success, yet these things are not enabled by card transactions or NFC wallets that emulate card transactions. These merchants simply must move forward with wallet initiatives of their own. Target and Wal-Mart have already launched and/or made public announcements about proprietary wallet initiatives. MCX merchants are not giving up this fight.

Interchange Pricing

Card-issuing financial institutions (FIs) compete aggressively with each other to attract consumers to use their credit and debit products, often by rewarding them in the form of cash back, frequent flier points, concert tickets, access to airport lounges, or with a series of other benefits and products provided to thank their customers for their business. The more money the FIs can spend on retaining their customers, the stronger their customer loyalty will be.

At the same time, FIs do not compete to attract business from their merchant customers. Payment networks such as Visa and MasterCard ensure near universal acceptance at all card-accepting merchants. This is a great benefit to merchants, consumers, and financial institutions alike. Merchants can easily accept cards issued by any FI, consumers can easily use cards from any FI at any merchant location, and FIs can gain universal acceptance without having to execute individual acceptance contracts with merchants around the world. So the way financial institutions generate revenue from merchants is by having lots of loyal consumers. For merchants, this creates a big problem. When they sign up to accept cards, they agree to a single, standardized pricing structure known as interchange that is governed by the payment networks. This means that pricing competition doesn’t exist among financial institutions seeking to gain acceptance at or volume from merchants. The result is that FIs often compete by taking as much money as possible from their merchant customers while giving as much as possible to their consumers. Payment networks often compete to attract FI issuers by holding interchange rates as high as possible in order to provide FIs with the largest possible revenue stream. Merchants have been challenging this situation through legal channels for years and they have won many concessions from the networks and achieved governmental regulation of interchange rates in several countries and regions around the world, including in the United States. But as is evidenced by ongoing and recently filed lawsuits, they aren’t done yet.

The War Lives On

MCX’s founding objectives can be summed up in two bullets:

  1. Build a merchant-controlled wallet that enrolls consumers and enhances customer engagement.
  2. Disrupt interchange pricing by forcing FIs to compete for acceptance in the wallet.

The first of these bullets remains a compelling commercial need that MCX merchants simply must pursue in order to keep up with the digital economy. In the next stage, they will focus on proprietary wallets that are exclusive to the merchant that develops it. The concept of a wallet that can be used at multiple merchants is on hold, but the need is sure to rise again in the future.

The second is the expansion of the legal war against interchange that merchants have been fighting and winning via regulation and settlements around the world. It involves adding a commercial dimension to what has been an ongoing legal battle for many years. By fighting interchange commercially as well as legally, the merchants force the networks to fight on multiple fronts and strengthen their legal position, and they hope to gain enough traction to convince some financial institutions that circumventing the payment networks is a good idea. Because merchants have been winning the interchange battle around the world, and because the MCX experiment yielded a promising victory by netting an alliance with Chase, MCX merchants would be foolish to give up on disrupting the interchange model.

So yes, MCX as an organization may be on its last legs and many payments pundits will take this as an opportunity to trumpet the strength of the payment network model, announcing that winning in payments is harder than it appears, that the entire MCX effort was misguided, and that NFC, Apple Pay and Android Pay represent the future of payments. However, if you are looking at the recent MCX announcement as anything different than the below clip, you’re missing something.

 

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