Apple Pay and MCX : It's Not (All) About Interchange Fees

Credit cards get stolen, in one form or another, every day, as do debit cards. For me, one of the fundamental differences between the two, as I’ve unfortunately experienced personally, is this: bogus credit card charges can be disputed, and in the end, you won’t have to pay them if the issue is resolved. Fraudulent debit card charges can also be resolved - but until they are, your bank account is probably empty. It’s one reason we use credit cards far more than debit cards.

Apple Pay makes that even more secure, dramatically reducing the possibility of fraud. And it’s stupidly easy to use. And the way it's implemented, with near-field connections and secure tokens, a merchant never sees your name, never sees your credit card, has no idea who you are or what your spending habits are: it's like using cash at Radio Shack and declining to fill out any personal information.

Think about that.

There’s a lot of buzz generated about the feud developing between Apple Pay and the Merchant Customer Exchange (CTX), a consortium strongly supported by Walmart. Most of the press seems to think this is all about avoiding those fees that MasterCard, Visa and American Express charge for processing purchases through their networks. MCX, with their product, CurrentC, plans to avoid those charges by having customers tie their CurrentC purchases directly to their checking accounts. CurrentC also avoids the necessity of having an iPhone 6 in your pocket by flogging that old mostly-dead horse, QR codes. MCX-loyal merchants like CVS and Rite-Aid have gone so far as disabling their touch-to-pay POS terminals (also disabling Google Wallet), preferring to wait for their own MCX solution, to be launched sometime next year. That's right, these merchants are now preventing you from using certain payment methods in their stores with the idea that this will somehow incline you to be loyal to their own "real soon now" homegrown methods.

While there are a lot of details left to be made public, as someone who’s been in the security business for a long time, the Apple Pay model looks to me like a lot of problems solved elegantly using newer, better tech, while the MCX model looks like someone trying to warm over processes invented almost 20 years go. And personally, I’m not inclined to use a system that requires me to tie my checking account directly into their system; I effectively quit using PayPal years ago for that very reason.

I agree that this is about the money - but not, in fact, about the interchange fees. MCX wants to build a payment network that centers more on a “loyalty program” model, one that allows merchants to “provide valuable messaging” to their customers, based on their intimate understanding of a "customers purchasing history and habits”. In other words, they want to track their customers' every move.

Merchants are used to paying the interchange fees, and long ago built those fees into their pricing structures. I’m sure they’d love to find a way to strip that 2% to 4% off and save that money (although I’m highly skeptical we, the customers, would see those savings should they do that). But in the end, what terrifies the merchants is the specter of their customers becoming truly opaque to them: They are terrified of losing their ability to use us as a marketing channel.