Karen Webster, writing for Pymnts.com:
Something CurrentC also doesn’t blab about, but is a well-known fact throughout payments-land, is that its contracts strictly prohibit its member merchants from accepting any other form of in store mobile payments scheme outside of its own. I would imagine that over the last two years, that’s probably led to more than one scary conversation between the “just-keep-my-cost-of-acceptance-low” Corporate Treasury folks and the “I-want-to-just-sell-more-stuff-in-my-stores-and-accommodate-my-customer’s-payments-preferences” marketing and merchandising folks when presented with compelling mobile payments schemes. Until Apple Pay, which has generated all sorts of hype and media attention, its member merchants probably felt that they weren’t too missing out on much since it wasn’t like its customers were walking into those stores asking to use a mobile payments scheme and were denied the opportunity.
Until last week.
And:
You don’t have to be a Rhodes Scholar to figure out that the abrupt about face at Rite Aid and CVS, CurrentC merchants, was the result of some sort of disconnect between the marketing peeps wanting to offer Apple Pay and the finance/treasury folks that signed the contracts a few years ago that said they couldn’t.
And, seriously folks, say what you will about Apple Pay and its long term prospects as a viable mobile payments scheme, but the spin about security concerns and data privacy concerns is not only spin, it’s not even believable spin given all that we know about Apple Pay and its security and privacy protocols.
And this, from the New York Times:
The problem is that under the terms of their MCX contractual agreement, they are not supposed to accept competing mobile payments products like Apple Pay, according to multiple retailers involved with MCX, who spoke on the condition of anonymity. If these retailers break their contracts, they will face steep fines for doing so, these people said.
If true (and it sure seems to be), this behavior is unconscionable. When the FTC has a moment free from their pursuit of AT&T, perhaps they’ll look into this. Feels like unfair trade practices to me.
[Hat tip to Stephen Tallent]
UPDATE: Upon reflection, and a lot of discussion, there certainly is plenty of precedent for MCX prohibiting Apple Pay. I think what rankles me here is the apparent lack of transparency. But even that might be constrained by an NDA. Hard to fault CVS, RiteAid, et al, for not being up front about a clause in their contract if the contract itself contains a non-disclosure provision. I can only imagine that this is the case, given the lack of publicly available information on MCX terms and conditions.
That said, any company that signs a deal like this, especially for a pig-in-a-poke restrictive system that does not yet exist, deserves what they get. My 2 cents.
If this is the case then why was Google Wallet accepted until now?
Google Wallet was probably too small to care about. I’d wager there was a gentlemen’s agreement that as long as a “competing mobile payments product” was less than x% of total sales, MCX wouldn’t pursue breach of contract.
And then Apple happens.
My guess is that hardly anyone was using it so it wasn’t on anyone’s radar. While I bet Apple Pay use was low, it was probably high enough for someone to have noticed. Or MCX reminded its members about the contract.
Unfair practices might be stretching it. Costco has an exclusive agreement with American Express: no other credit cards are accepted there. (Debit cards are fine.) AmEx probably gives them a good rate for that. These retailers went in expecting no mobile payment system to be good enough for an exclusive agreement to be an issue and signed their rights away based on that. I don’t think this is inherently anticompetitive.
That being said, given the popularity of Apple Pay, they might be able to claim the contract is now unfair and sue to have it nullified. That would kill CurrentC though, which I’m not sure these retailers actually want to do.
Do we have numbers of any kind that indicate what percent of non-cash in-store retail payments have been mobile over the past year or two? I don’t frequent very many of the higher-end boutiques that have adopted Apple Pay, but I can’t say I’ve ever seen very many folks using NFC at my local CVS.
There is a difference between only deciding to accept a single card versus being un-allowed to accept any competing form of payment.
There is going to be a lot of pressure from banks and payment processors to kill CurentC as it bypasses payment processors and has no actual fraud protections.
I don’t see where the FTC comes into this. It’s not a violation of US Code to enter into a bad deal for your company (just ask the execs at GTAT). I do think some people at CVS and Rite Aid are going to lose their jobs over this. Money quote: “and the CEO is now probably going to be the one brought in to decide whether losing sales and reputation is worth saving a few cents on interchange.” If the fact ends up being that the choice is really between losing sales or paying a big break-up fee to MCX, we may see execs quit rather than be forced to deal with the fall-out from that decision.
“I don’t frequent very many of the higher-end boutiques that have adopted Apple Pay”
You mean McDonalds?
True, but signing a contract agreeing to that certainly isn’t illegal. It may be stupid, and probably binding, but not illegal.
This isn’t about the past, it’s all about the future.
There is a possible angle here. If the merchants are found to be forming a cartel and colluding to cut out all other players for their own solution it could run afoul of the law.
I would say that depends. Look at the ebooks case. They agreed to a contract that was later found to be illegal. I think we will need to wait and see.
I think you’re comparing, uh…wait for it, Apples and oranges. eBooks was about price-fixing. As long as you still accept cash, they’re probably safe. Plus, Visa and MasterCards are hardly the most sympathetic companies in the world.
It may be illegal in this case because of the possible formation of a cartel. It doesn’t matter how one views Visa or MC here either. The eBook case hinged on the formation of a cartel.
“cartel” and “collusion” sound like stretches. And who’s suing for what? Visa and MasterCard are probably laughing their asses off right now. Suing to stop Wal-Mart and its Keystone Kops car full of clowns is probably the LAST thing they want to do. As for CVS and Rite Aid, their CEOs may have their lawyers trying to find a way out of the MCX consortium agreement, but it’s hard to keep a straight face in front of a Federal judge while saying “we want out of our colluding agreement as it’s no longer advantageous for us.”
The federal gov’t would be suing not visa or mc.
Cartels have to sell something, something only they supply. As long as you still take cash (note the “for all debts, public and private” printed on every bill) you can pretty much make whatever other payment arrangements you want.
Suing for what? Remember those “…and they don’t take American Express” Visa ads from a few years back? Deciding you’re not going to take any credit card other than your own isn’t illegal. Taking no credit cards at all isn’t illegal. What’s the crime here?
Them, too. My question is more about how effective any sort of boycott would be at this point.
It’s stuff like CurrentC (and the forced blocking of Apple Pay) that make Americans so distrustful of “greedy” corporations.
Exactly. We’re probably not too far from people leaving their credit cards at home, like they’d leave some form of primary ID like a birth certificate at home.
If I can carry my phone around and have one less thing to worry about being stolen (after all, I’m already carrying my phone) so much the better.
In this case if you have the merchants as a group working to cut out the other players it may become collusion. That is my point.
Most companies signed 3-year deals with MCX in 2012, which means those deals will expire around the time CurrentC launches. I can’t fathom that they’ll attract additional companies now or get merchants to extend their exclusivity with all the bad press CurrentC has received, so it probably means it’ll just be another year or so before Apple Pay takes off and CurrentC is dead in the water.
Visa, MasterCard, and/or American Express don’t have a Constitutional right to swipe fees. CurrentC isn’t a great deal for consumers, but neither does it harm them in any demonstrable way. MCX has some serious PR and technology problems, but I don’t think they have any legal worries, at least until their members start to trying to break their contracts.
That’s a conclusion I’d be wary of. If the NDA everyone has, allegedly, signed is that threatening, I’d be skeptical of whatever details I read on the blogosphere.
Unlike those paragons of altruism Visa, MasterCard, and American Express? This “war” makes me feel like I did during the Iran-Iraq conflict of the early 80s. I hope the last credit card company wins an MCX-killing lawsuit and then dies laughing!
“Hard to fault CVS, RiteAid, et al, for not being up front about a clause in their contract if the contract itself contains a non-disclosure provision.”
Yeah, as an Apple fan I find it hard to pillory CVS and Rite Aid for speaking minimally and carefully in the middle of a PR nightmare knowing that I wouldn’t want to find myself on the wrong side of a broken contract with and organization that has Wal-Mart’s deep pockets behind it.
“CurrentC isn’t a great deal for consumers, but neither does it harm them in any demonstrable way.”
As Gruber often says, “noted for future claim chowder.” Here’s the sort of “great deal” CurrentC is likely to encourage more of:
http://www.forbes.com/sites/kashmirhill/2012/02/16/how-target-figured-out-a-teen-girl-was-pregnant-before-her-father-did/
If a merchant consortium of this kind could somehow be trusted to safeguard personal consumer information instead of selling it at every opportunity, I’d be the applauding them from every street corner.
I think what we’ve already learned (and are sadly likely to hear more about) tells us how careless they’ll be about both security and customer account integrity.
Apple should change the App Store policies prohibiting any app to utilize payment data that is not stored in the secure element. This would ban the CurrentC app from the App Store thus eliminating the competition before it ever launches. No app available then no CurrentC.
Well, Wallgreenes is a competitor to Rite aid and CVS, for Walmart there is a combination of some. The thing is there may be quite a few stores that have NFC without being part of the Apple Pay program.
Can’t do that. Paypal, Starbucks and others not stepping on Pays toes will get alienated due to it. Besides, those are dirty tactics – just be better and customers will adopt. They already are.
Seriously? You read this in the media yesterday and now you’re trying to peddle it as a “well-known fact throughout payments-land”? Give us a break.
Target’s been collecting customer data for years, and they were hacked in a thorough and thoroughly preventable way already. How much worse can it be? Consumers actually have to pay for the fraud? Well, that’s a possibility, but if it does happen, every retailer involved might as well just close their doors forever because the PR nightmare would make Bhopal and the Tylenol poisoning cases look like nothing. The merchants would cover the losses and move along.
Why not build API that allows Starbucks, Paypal, etc… to tie into the secure element? The reason it would prevent CurrentC is because they do not want credit cards due to the fees therefore they wouldn’t redesign their business model let alone the app to accommodate the policy/
The removal of fraud protections alone is great harm to the consumer.
That’s true. Makes me wonder how they got all these companies to sign over their firstborn child and pay six-figure entrance fees. They must really hate credit card companies!
There’s no fraud protection on cash, or debit accounts, inherently at least, for that matter. Even if that was the legal deal-breaker, fixing it is easy enough—offer consumer protection. Since it would also be a big marketing plus, it would be a no-brainer.
I’m not a programmer, but isn’t the “secure element” no longer “secure” if you give third parties API hooks into it? Or is that the “secure enclave?”
“They must really hate credit card companies!”
Like Khan hates Kirk.
Apple could control how & when the secure element could be called upon just like it is done exactly how ApplePay is being incorporated into the Target App. It would still only be a one time use and not pass the credit card information along.
On a side note…isn’t it funny that Target will be utilizing Apple Pay in its App but as an MCX member will not use it in the stores. The contract between retailers & MCX obviously has some loopholes.
Haha well yes… but it seems like at some point they’d have to question if it was worth it. Now that MCX has announced they won’t impose penalties for leaving, I have to wonder if we’ll see any defectors.
You have to give the CC companies for getting behind the more private solution, even if they are picking up additional benefits along the way.
That is untrue. There are basic protections for debit cards and a number of banks offer more protections on top of that. ACH has no protections. The merchants in fact have no interest in those protections because that means they lose money whenever a chargeback occurs.
I decided to play principle over convenience when necessary. I may not be ble to affect policies, but I can choose where and how to pay for purchases. I find it really sad that Target turned away this real opportunity for secure payment for its security concerned customers. I know about the MCX contract, but I read today the merchants just have to end their contractual relationship ( according to an MCX press release). How that would play out or if that would
work is another question.
Because Central Command (aka Walmart) didn’t see GooglePay as a Threat…
But Fines can be contended in Court and settled out of it, Customers can not… that’s something for what CVS and Rite Aid CEOs are going to get burn… how much is the value their respectives companies’ goodwill plummeted and on whose shareholders benefit, it’s going to be a question that the CEOs won’t be able dodge in their next shareholders meeting.
“-By the way who’s getting all the value of we have been bleeding out of our goodwill? Well, Walmart.
-Then I guess we shall accept your resignation as our CEO effective immediately and go hire a CxO from Walmart at least we’ll get some one with the foresight to be able to screw instead of getting screwed, given that we already prepayed his training.”
If people really want to send a message to CurrentC retailers, they shouldn’t just boycott them. Instead, they should go to the stores, load up a ton of items, let the cashier ring everything up and then attempt to pay with Apple Pay or Google Wallet. When the checkout fails and the cashier explains they don’t accept Apple Pay or Google Wallet, just explain how you don’t keep credit cards with you anymore, so “never mind, then,” and walkout without making the purchase.
When retailers start running reports of all the missed sales, maybe they’ll think differently about what forms of payment they allow.