The Apple/MCX Wallet War's Collateral Damage

Apple Pay was supposed to deliver a victory blow for Near Field Communication payments, but its launch seems to be doing as much damage as good for the cause of NFC.

There is a sharp divide among retailers, which appear to be taking sides based on whether they prefer the upcoming Merchant Customer Exchange/CurrentC wallet over Apple Pay. But in the process of fighting Apple Pay, these retailers are blocking previously supported payment methods such as Google Wallet, Softcard and even contactless plastic cards. CurrentC uses QR codes instead of NFC.

"At this time, CVS/pharmacy cannot accept Apple Pay or other mobile payments that use NFC technology," CVS spokesman Michael DeAngelis said, following reports that CVS, an MCX participant, shut off contactless payments within a week of Apple Pay's launch. "We are in the process of evaluating mobile payment options for our customers."

At CVS, the terminals still light up when they detect an NFC wallet or a contactless card, as confirmed by a PaymentsSource test at a CVS store today. An app such as Google Wallet will even signal to the consumer that it is working, though the transaction stalls when an error message appears to the cashier, and small text on the terminal screen asks the shopper for an alternate form of payment.

To the consumer, this looks more like a technical glitch than a deliberate decision on the part of the store — and CVS's rivals such as Walgreen Co. are already jumping at the chance to win the business of frustrated Apple Pay users, as seen in the following tweet:

Hey, iPhone 6 and 6 Plus users! The choice is yours: Use #ApplePay today at any of our stores! http://t.co/LXS01ntZEA pic.twitter.com/V0BifDtXJq

— Walgreens (@Walgreens) October 28, 2014

Banks may not be bothered by the loss of contactless card acceptance at the new batch of anti-NFC merchants. In the U.S., the banks' and card networks' marketing of contactless payments tapered off years ago, even as contactless card issuance climbed.

DeAngelis said CVS is not providing any more information about its payment acceptance strategies at this time, though as a member of the Merchant Customer Exchange, the pharmacy chain is likely waiting for MCX's CurrentC wallet to launch nationwide next year. MCX requires its merchant participants to accept its wallet exclusively, though it also allows them to opt out of MCX altogether without paying a fine.

MCX's merchants must also overcome any security fears consumers have over its mobile wallet, particularly after today's revelation that hackers obtained the email addresses of some MCX test participants. MCX did not return inquiries from PaymentsSource about its breach or its rivalry with Apple Pay.

Update: Shortly after this article's publication, MCX held a press conference to discuss its conflict with Apple Pay and its data breach. It also addressed its views on NFC. Click here for our coverage.

But this battle goes beyond whatever contractual obligations merchants have to MCX. The long-running dispute will continue "long after merchants either concede to Apple Pay or mount a successful QR code initiative," said Jim Van Dyke, CEO and founder of Javelin Strategy & Research.

Apple's widespread popularity will play against retailers, so "the onus is on merchants to prove that they have a viable alternative," Van Dyke said. "It will be good for consumers if Apple Pay creates a worthy competitor from the merchant ranks."

Right now, it's hard for the average consumer to tell which merchants accept Apple Pay and which do not. Apple doesn't offer a merchant locator app, and substitutes such as MasterCard's Nearby app only show which merchants accept contactless MasterCard payments (though this data may be quickly rendered inaccurate as more merchants switch off NFC).

Adding to the confusion is the mixed message coming from MCX's ranks. Target, for example, is both one of the most prominent MCX members and one of the most outspoken supporters of Apple Pay in-app payments.

At a conference this week, Apple CEO Tim Cook called Apple Pay the most successful contactless payment system available, based on reaching 1 million consumers within days of its debut. Apple Pay launched shortly after the debut of the iPhone 6 and iPhone 6 Plus, the first Apple phones to have NFC built in.

Before Apple's new handsets, any iPhone-based NFC wallet had to use NFC stickers or phone cases. But the most successful wallets, such as the Starbucks app, instead used bar codes, a system that more closely resembles the MCX/CurrentC approach.

However, despite Cook's enthusiasm for Apple Pay's early uptake, other mobile wallet providers have found subscribers don't automatically equate to users, said Richard Oglesby, senior analyst at Double Diamond Payments Research.

"I don't think Apple Pay has moved the needle at all as of yet," Oglesby said. "There is no data available yet about contactless payments going through the roof."

MCX is in a showdown with the payment networks, more so than with Apple, Oglesby added. "I am sure MCX will have conversations in the future, if they haven't already, about how to work with Apple outside of the payment networks."

Apple Pay enables payments only from MasterCard, Visa and American Express cards, with Discover reportedly working to get on board as well. MCX, by contrast, aims to enable payments directly out of consumers' bank accounts.

Banks are also divided on whether Apple Pay helps or hurts them. Wells Fargo this week informed its customers that it would provide a $20 credit on their credit card bills to any who use their Wells Fargo card with Apple Pay. Debit and prepaid customers would receive $10 credits, the bank said.

But Citizens Bank is less enthusiastic. Michael Battagliese, senior vice president and head of debit and emerging markets for Citizens Bank, said at SourceMedia's PayThink conference last week that Apple is making banks agree to "the most one-sided agreement I have ever seen."

Banks that consider Apple's terms agreeable today may regret signing on if Apple changes its terms to require a payment, he warned.