PETERBOROUGH, N.H.-If the Merchants Customer Exchange (MCX) succeeds, not only is credit union interchange revenue at risk but so is critical member transaction data.
Though experts are split on whether the fledgling mobile payments system will make a go of it, some analysts agree CUs should be following the retail giants' initiative closely and even considering participating if that becomes an option.
MCX has legs, with backing from major retailers that represent more than $1 trillion in annual payments. "I give it low odds of succeeding, but if it works it will change everything," said Tim Kolk, owner of TRK Advisors, addressing the possibility of an ACH-based closed-loop network that could cut out issuer interchange. "Consumers use this payment network instead of an association network, like Visa, and it will change the nature of debit card processing; not credit cards, because I don't see MCX offering revolving functionality.
"Even if MCX comes together, there is a lot of history of these kinds of initiatives getting started and tailing off," continued Kolk. "But if MCX gains traction and mass ... It's one of those low-odds high-impact outcomes."
Caroline Willard, EVP, markets and strategy at CO-OP Financial Services, Rancho-Cucamonga, Calif., is also skeptical. "I want to be clear that I am not being dismissive of MCX. It's a credible threat for no other reason than the size of some of the retailers that have signed on. If you just took Walmart's volume alone, I don't think any credit union wants to see all of its Walmart transactions go away."
In addition to Walmart, other big retailers signing on include Target, Kohl's, Best Buy, Shell, Gap, CVS and 7-Eleven. MCX reports it now has 20% of the top 100 merchants by annual revenue, and that the network's numbers are steadily growing.
Teri Koenke, VP product management at PSCU, St. Petersburg, Fla., says there is real opportunity for MCX to gain critical mass.
"They have the petrols, the supermarkets, the department stores, the drug stores ... all of the pieces the consumer needs to use the network frequently. But they need to get the consumer educated on the (POS) experience, and it's got to be a consistent experience across the market, which I think is a huge question mark."
Bill Lehman, VP of portfolio consulting at CSCU, Tampa, Fla., cautioned that despite many obstacles, it's "naïve for anyone to think MCX won't take off and affect credit unions' business."
Lehman, along with several other sources, noted that MCX has not been clear as to what the final form of the offering will be.
MCX spokesperson Jeremy Mullman told Credit Union Journal that the Dallas-based MCX has intentionally not released details, including its launch date. Last month MCX announced a major milestone, an agreement with FIS to power its mobile commerce network, giving it connections to more than 14,000 CUs, banks, retailers and third-party processors in more than 100 countries.
Mullman said MCX mobile payments will occur in-store via bar-code scanning and connected to the cloud. Other technologies, such as near field communication (NFC), could be integrated in the future. "Right now, especially with iPhones not having NFC, we want a solution that works across all smartphones."
MCX is partnering with Gemalto to develop the front end of its digital wallet. "We are completely open to serving any issuer, but it's got to be on terms that make sense for all the parties," said Mullman.
Backed by retail giants fighting Visa and MasterCard, much of the industry's attention has been on MCX possibly lowering interchange or cutting it out.
"There is more going on here than interchange," Mullman told Credit Union Journal. "There are a number of things we don't like about the legacy payments system, and a huge driver is the consumer transaction data. Merchants hate sharing data from their customers' transactions with competitors."
Kolk thinks data, in the long run, is the primary MCX target. "I think retailers realize the 20-year view of winning or losing with this is whether they get the information and not whether they make 1% more margin at POS."
Lehman admitted to being "scared" about what losing control over a great deal of member transaction data could mean to CUs.
"There will be a lot of consumer transactions that we will not have access to if members use the MCX wallet. That is the big thing. We are talking about that next level of card rewards that will stimulate our industry-and that is on-time merchant offers, promotions, loyalty etc. If we are not in some kind of control of that information, we will lose some touch points with our memberships."
But CO-OP Financial Services' Willard says MCX's big play is interchange. "I would be highly skeptical of any statement saying it's not about the interchange. Of course it is. It's always starts with economics and then you layer on the features and functionality afterward."
CO-OP Financial President Stan Hollen contends that last month's ruling by a federal judge that struck down the 21-cent interchange cap for FIs above $10 billion in assets lessens the need for MCX.
If the court decision stands, and the Fed reduces interchange "down to 12 to 14 cents, then it calls into question the viability of MCX in the first place. The only reason MCX was formed is to reduce merchants' costs for transactions," Hollen said.
