The Apple Pay launch set off a chain reaction in the mobile payments space. Near-field communication (NFC) technology, which powers the solution, has been waiting in the wings for years. Apple Pay brought it back into the spotlight in September.
Shortly thereafter, a group of U.S.-based retailers, including Walmart, BestBuy, CVS, and RiteAid, disabled the in-store NFC readers they already had so their customers couldn’t use Apple Pay. The merchants are all part of the Merchant Customer Exchange, or MCX — a consortium of brick-and-mortar retailers partnering to establish their own mobile wallet solution, called CurrentC.
Meanwhile, Starbucks continues to carry the day when it comes to mobile payments in the U.S. During its last earnings call, the coffee chain claimed 90% of all mobile payments processed in the country during the last year, and promised to keep playing a major role in mobile payments, both at its own stores and beyond.
The field is suddenly crowded. Which solutions will dominate?
Success = Flexibility + Improvement + Agnosticism
I believe there’s a formula for success with a mobile payment solution. It involves:
- Flexibility, meaning you can use it in a lot of different places, and eventually everywhere you make any kind of payments: retail, ecommerce, bill pay, and peer-to-peer (P2P) money transfer.
- Improvement over current solutions, meaning that it’s somehow better than the cash, credit, or debit payment mechanisms available today. Payment providers can achieve that by integrating payment with loyalty and rewards programs, or by offering enhanced security and added convenience. (This last one is the most challenging, as credit/debit payments are fairly painless already.)
- Agnosticism, meaning that you can use this solution on any phone, with any operator, any bank, and any credit issuer.
So that’s: Flexibility + Improvement + Agnosticism = Mobile Payment Solution Success.
The higher your score in each category, the better your odds for coming out a winner.
Scoring the Players
Now that we have a scorecard, let’s examine each solution I mentioned above (Starbucks, Apple Pay, and MCX) against that formula.
Starbucks has pretty much single-handedly changed consumer behavior in the U.S. Obviously, the company has a proven solution. Why? Starbucks nailed the Improvement and Agnosticism variables.
Right now, the Starbucks app gets low points in this category, as it only works at Starbucks. Recent announcements indicate the company is looking to expand, though, so stay tuned.
By combining payments with its already-popular loyalty program, Starbucks made it easy for its regular customers to get free drinks without having to keep track themselves. And in doing so, it single-handedly changed consumer behavior in the U.S. market.
Starbucks easily wins here with its cross-platform app available on iOS and Android, which covers 90-some percent of the U.S. smartphone market.
Apple Pay is off to a running start. Early reviews are positive, but we’ll have to watch and see if it succeeds — or how well. I’m guessing it will succeed, since Apple Pay delivers at least partially on all fronts.
Apple Pay already works in many retail locations and within apps (see the full lists on the Apple website). It doesn’t have bill pay or P2P yet.
Apple Pay delivers here with enhanced security. By using tokenization and touch ID or a personal identification number (PIN), the solution never shares your actual credit or debit card numbers with merchants, nor does it transmit them with payment. Also, bonus points for the watch integration-slash-Star Trek factor.
This is Apple’s weakness, as Apple Pay only works with Apple devices. The company is trying to make up for that through partnerships with payment providers, retailers, banks, and credit issuers. The list (linked here and above) is long and growing.
For CurrentC, the solution from MCX, the key will be tie-ins to merchants’ loyalty programs, as that could be the deciding factor for rewards shoppers.
The MCX website says it will work in retailers’ apps as well as in stores — but only participating retailers.
Passcodes and “paycodes” reportedly give CurrentC enhanced security (except that it got hacked 36 hours after its beta launch), but this solution’s reliance on QR codes makes it less convenient than traditional payments. CurrentC’s differentiator should be better loyalty and rewards from participating merchants.
The website provides no official information on this front.
These are just three of the mobile wallet solutions competing for U.S. market share, but you can gauge the others against the same criteria: Google Wallet, PayPal, and Square, not to mention all the retailer apps.
We’ve been waiting to see which technologies and which solutions will dominate for a long time. And we have to keep waiting — but not much longer, I think. If this recent dust-up is any indication, 2015 promises to be an exciting year.