Well, that didn’t take long. Apple Pay launched mid October, and it’s already unmasking major strife in the retail industry.
According to The New York Times and others, Rite Aid and CVS both blocked the use of Apple Pay. Though neither company is saying why, one likely reason is a competing mobile payments app that a group of big retailers have been developing on their own.
But it’s a battle the stores won’t win.
Retailers including Walmart and Gap, as well as Rite Aid and CVS, are part of a consortium called Merchant Customer Exchange, or MCX, that have created an app called CurrentC. Apparently, CurrentC relies on scanning QR codes at the checkout counter, which makes it sound old-timey from the start compared to Apple Pay’s simple wave of the phone.
But ultimately, the real problem for retailers isn’t dated design. It’s the impetus behind the decision to try to go its own way in mobile payments. Shutting out Apple and its user experience expertise isn’t about doing what’s best for customers. It’s about what retailers perceive to be best for their bottom lines.
Cutting Out Credit Cards
Retailers have long had a love-hate relationship with credit card companies. On the one hand, credit cards make buying stuff easier, which retailers like. On the other hand, credit card companies charge merchants fees for every transaction, which they hate. And when you’re Walmart or CVS or Rite Aid, those fees add up. As what amounts to a new way to swipe a credit card, Apple Pay does nothing to change this dynamic. CurrentC, meanwhile, connects directly to users’ checking accounts, which cuts out the credit card companies and their fees. If only retailers could get lots of people to use their app, they could finally stick it to Visa and Mastercard.
But cutting out a frenemy isn’t a compelling starting point for creating a first-rate user experience, especially when design isn’t a core competency of your business. Shoppers don’t care about the behind-the-scenes woes that stem from stores and credit card companies not getting along. For Apple, by contrast, the bottom line and better design are perfectly aligned. The better the experience of paying with an iPhone, the more iPhones Apple sells. And the more iPhones Apple sells, the more people who will want to use them to pay.
It’s understandable that many retailers would initially balk at Apple Pay. Letting Apple colonize their checkout counters means ceding a degree of control and potentially spiking their own product before it even launches. For now, retailers have a choice to make: more sales thanks to Apple Pay versus theoretical savings on credit card transaction fees if users embrace CurrentC.
Why Would Anyone Use It
But that math only works if anyone is using CurrentC. And without innovative design—or the option of using your existing credit cards—as incentives, retailers will have to look to more conventional nudges to get customers to embrace an unfamiliar product. But the cost to retailers of marketing, discounts, and other rewards needed to get people to pay attention to yet one more app could eat up any advantage that comes from curbing the fees they pay. “I’d argue the spend required to get consumers to use it will be larger than the cost savings,” payments industry veteran Dudas said.
In the end, Apple enjoys the same advantage that gives it so much leverage in so many contexts: It controls the hardware and the software. Anyone who has an iPhone 6 or 6 Plus has a way to pay at the counter. And with 10 million sold the first weekend, that’s a lot of people with that ability. Retailers will have to work a lot harder to get customers to bother with their own app. In the meantime, those that refuse Apple Pay will be missing out on potential sales. And if your business ultimately relies on getting people to buy more stuff from you, giving customers one less way to pay doesn’t really make sense.
Or maybe it doesn’t really matter. After all, how many people probably turned and walked out of a CVS this weekend because they couldn’t pay with their shiny new phones? They just did what everyone else is still doing, everyday, everywhere: They pulled out a credit card.
Photo: Alex Washburn / WIRED