MCX: Dark Horse Or Shoo-In?

October 2012 Integrated Solutions For Retailers

By Matt Pillar, editor in chief

Walmart is leading a mobile payments application charge that’s backed by Target, Sears, Home Depot, CVS, 7-Eleven, Lowe’s, Shell Oil, and Sunoco, among many others. The ultracompetitive mobile payments market is on notice.

The elevator pitch from the retailers on board with the long-awaited Merchant Customer Exchange (MCX) is simple, though the details remain fuzzy. The platform will enable participating retailers to offer shoppers a secure, brand-specific smartphone application with native integration of the retailers’ own special offers, promotions, and loyalty programs, effectively taking mobile payments acceptance in-house. MCX proponents say it’s a simpler and more consumer-centric attempt to serve the growing number of smartphone-savvy shoppers who want to pay with their phones. In theory, participation in MCX will also drive lower interchange fees through economies of scale and by giving retailers more leverage to influence how consumers fund their purchases — preferably via the retailer’s own bank or private label payment option, branded gift cards, or consumers’ bank accounts.

Of course, the official announcement of MCX in August drew plenty of press prognostication, with some insiders speculating that the consortium is little more than the latest in a series of reactionary backlash gestures conjured up by a group of disgruntled retailers. It’s not so much about moving mobile payments forward, they say, as it is about a half-baked threat to the interchange mongering card brands. With the retailers’ motives in question, MCX has been called a dark horse among mobile payments leaders like Google Wallet, Isis, PayPal, and Square.

In this case, I don’t think the motive matters as much as who controls the message. I see MCX as a serious threat to both banks and competitive mobile payments application providers, if for no other reason than the massive reach of the participating retailers. They’re the feet on the street, the direct, real-time link to the shopper as the purchase unfolds. Successful execution depends on store- and household-level education, which is a monumental task, but one the retail brands have more influence over than any bank or m-wallet application provider.

The speculation around what motivates the MCX is fueled by irony. Retailers don’t necessarily find it competitively advantageous to share consumer payments data, which has been a hurdle for the likes of Google Wallet from the start. At face value, the fact that unlikely bedfellows Walmart and Target seem willing to drop that cloak via the MCX points to the notion that the consortium is borne of spite toward bank influence and interchange fees. And those very interchange fees that boil retailers’ blood present another wild card. Given a provision in the recent $7 billion interchange settlement that allows retailers to impose their own surcharge for credit and debit usage, will MCX represent a new revenue opportunity for retail brands as mobile payments gain traction?

We’ll be following the story closely as it unfolds and the big questions, like who’s building the technology infrastructure to support MCX, are answered. Meanwhile, my skepticism will be held at bay. This kind of star power — and the funding to back it up — creates an instant payments force to be reckoned with.