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What happens to the plastic pushers in an age of Apple Pay?

Stuart Lauchlan Profile picture for user slauchlan March 24, 2015
Summary:
In an age of Apple Pay and other digital payment tech, what's the role for the pushers of plastic? Can credit card firms like MasterCard and Visa find a new role?

Apple Pay
Pay by Watch?There is no one wallet that rules them all.

There is no one wallet that rules them all.

That was one of the more interesting messages that's come out of this week's Barclays Emerging Payments Forum in New York, where the likes of Mastercard and Visa have found themselves being grilled about the changing nature of the digital payments sector and their role in it.

Or in other words, in a world of Apple Pay, is there still room for the traditional credit card and payments providers? To which the emphatic response from the likes of MasterCard is of course - yes!

Ed McLaughlin, Chief Emerging Payments Officer at MasterCard, conceded that Apple's offering has had a big impact, if only in perception terms:

I think Apple Pay really served to capture the imagination of consumers and served as a catalyst in the market. From MasterCard's perspective I think one of the most important things is that one of the most consumer-focused, experience-focused, and accomplished technology companies in the world said the best way to serve their customers was by using MasterCard technology.

But Apple is not the only game in town of course:

As passionate as I am about the value of payments and the consumer experience as we can deliver, people who have iPhones are most likely going to use iPhones. There is a whole lot of people, in fact in many countries more people, who have Samsung hand phones and they’ll want to use those.

So as an issuing institution and network, I want to make sure I can reach my consumers where they are. So it is a combination of an Apple, of a Samsung, or other things we are doing. We are trying to make sure that regardless of what ecosystem or handset that you have, you can take advantage of secure contactless payments.

He added:

We don’t see this is about mobile, your mobile is a device it’s not the device. The profound thing that’s happening here is this movement to virtualized digital device-based commerce, regardless of what that is.

No one benefits more than MasterCard for being freed from the constraints of plastic.

Visa_Contactless_Image_Option110-2133
Contactless Visa

Hence the 'no one wallet' comment. Laughlin explained:

There is no one wallet that rules them all. I think for consumers, we say 'What is best for me to use here?' and the biggest thing you want to know is it all going to work?  So, if I am holding my iOS device and then want to tap to get onto the tube in London, and use my biometric to authenticate it, that is a great experience. When I go to a store and I want to buy that large object and have it shipped to my house with one touch on an app using an embedded MasterPass is a great experience.

So I think all of these fit together in consumer liaison. I don’t think there is adverse in this at all. I think it is absolutely an end and we are making sure we can provide all of those different experiences that we are going to look for.

Taking on Walmart

One battle that Apple has to fight yet comes from the Merchant Customer Exchange (MCX) consortium, led by retail giant Walmart, which has cut out both Apple Pay and the established credit card companies in favor of its own mobile digital payments solution.

MCX is backed by the likes of Target, Rite-Aid and CVS, big hitters of the US retail sector, and it means business. CVS and Rite-Aid already turned off the Near Field Communication (NFC) functionality in their point of sale terminals, a move which rendered Apple Pay unusable in their stores.

Laughlin was considered in his response to the potential threat here:

You have to recognize it is not representing the merchant community in general, just the set of them in specific. So you’ve got merchants like Walgreens and McDonald's, Subway, Uber, all these next generation app-based economies which are really embracing mobile and mobile technology in a very open manner.

For the merchants that are in MCX, we work with them all the time. We have co-brand programs with them, we have payroll programs, literally millions of our mutual customers shop with them every day. So, we work with them closely and we will continue to do so.

MasterPass_on_Mobile
MasterCard's MasterPass

And it's all about the customer, he added:

I think the key for all of this, for every new technology...it is not about who owns the consumer. We don’t particularly want to be owned. It is about who serves us best.

I think recognizing what consumers have and what they want to use is essential. And in order for consumers to change and do something, you have to provide them something that works better.

At the end we are all here to serve our consumers and they are going to tell us what they want to do and what works best for them. What we are focused on is having the right enabling technology.

Bill Gajda, Head of Innovations and Strategic Partnerships for Visa, was more bullish in his reaction to MCX:

I think consortiums are hard. I think these people compete naturally more than almost every other respect and so getting together to define common standards and the common consumer experience around payments and in-store, I think that’s difficult.

If they do try to replicate a lot of the capabilities that we talk about in our network, it’s not [that] the cost is zero. So what are the benefits? The thing that I keep on coming back to is, what’s the value prop?

He added:

The merchants by and large are now seeing consumer demand and like to support that customer experience. What’s happened in markets like Australia as an example, it became a point of competitive differentiation that if we hadn’t turned on PayWave, then people were going other places because they like that shopping experience.

So we’re going to start to see that in the US. Merchants by and large are going to support Apple Pay, and Samsung Pay and Google Pay, and they’re going to turn on NFC if they have it. And if they don’t have it, they’re going to get it.

Recently PayPal acquired Paydiant, which is one of the main technology providers for MCX. This in itself may end up having a knock-on impact on the retail consortium's efforts or potentially result in PayPal throwing in its lot with MCX in a bid to get to the in-store point of sale. Gajda argued:

I’ve said publicly several times that I think that PayPal as the service, as the brand, with or without Paydiant, has a hard time getting to the point-of-sale.

I think they’re still going to try to crack point-of-sale, because that’s still where the volumes are.

There is no question that PayPal solved a big point of friction 14, 15 years ago, as e-commerce was taking off. There is a clunky experience and if you don’t have some kind of integrated wallet, it’s still a clunky experience to do an online payment.

In terms of the point-of-sale, the problem with PayPal is they’ve never solved the point of friction like they did in e-commerce. Paying with your card, even at the point-of-sales, has been easy for the past 20 years and even more easy since we do that no signature required. Now that’s going to be in-app or it’s going to be NFC. What does that PayPal brand or experience solve at the point-of-sale?

Overall, the trick for the credit card providers today is to maintain existing working relationships in a shifting marketplace, while moving their own offerings into the digital age. To that point, Laughlin insisted that with its plastic MasterCard and its digital MasterPass, his firm is doing just that.

He concluded by arguing that what's happening now should't be thought of in terms of the replacement of old solutions, but the addition of new ones:

If you look at a lot of the major disruptions in commerce - whether you go back to first wave e-commerce or something like an Amazon or something like what iTunes did in the digital media goods or what Uber is doing today in mobility - that was all done by building great new businesses based on the payment systems, not by replacing the payment systems.

So what you’ll see with us is [to] constantly analyze new technologies that are out there and incorporate those that make us better, making sure there is no gaps for what we have anything else to risk.

My take

As a recent convert to contactless payments, the direction of this technology space intrigues me. As a non-US resident, I've not been able to try out Apple Pay yet, but I'm pretty sure it - and the offerings from Google and Samsung - will survive the MCX movement, even with the likes of Walmart at the helm. What the customers want will win out in the end.

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