Apple timed the introduction of Apple Pay exactly right for the US market. Retailers are just in the midst of a switch to NFC payments, and are making changes to their payment terminals. It’s hard to convince retailers it’s worth making a change, but they’ve been convinced that they need to change something by the uptick in fraud, and Apple’s token-based payment system is a great system for reducing fraud.
But Apple isn’t the only company that can see the opportunity for change. CurrentC, a new system being developed by a consortium of retailers, is a different thing altogether, that routes around the credit card companies and withdraws the money directly from your bank account. Think of it as Apple Pay for your debit card.
It can’t be as integrated into iOS as Apple Pay, so it’s a much more cumbersome process. And it doesn’t have the user protections that Apple Pay has built in, such as using payment tokens instead of sharing your account details with the merchant. But to the merchants, that latter one is a feature, not a bug.
But really, it’s about the cut that the credit card companies take. About 2%, I believe, is what’s at stake here for the CurrentC merchants. And think of the scale here: That’s 2% of all retail transactions. That’s how much money is going to the credit card companies today, and that’s the amount that these merchants have set their sights on.
There are so many issues here. I want to look at just a couple.
My Visa card provides quite a few services for their fee. Extended warranties, for example. Travel insurance. Rental car insurance. Credit card companies have been offering these sorts of deals for a while, because they have an incentive to attract customers and this is one of the ways they compete with each other.
Now think about the same situation with CurrentC. Rather than using the 2% to compete for your card business, they can use the 2% to compete with other retailers. CVS can offer coupons, points, and other loyalty programs, to attract you to CVS. And I can absolutely see this being attractive to consumers. While I personally hate the whole loyalty card movement, I know plenty of people who collect their points at various stores and it does affect where they shop.
One concern I have is that the 2% that Visa is taking is used to pay for the services that Visa offers. Fraud protection, for example. You can easily contact Visa and have a charge reversed, and Visa will take the money back from the merchant, who must then prove that you owe it. A system that’s run by the merchants will shift the balance of power.
And I see some parallels here between companies like Netflix, that are trying to route around cable companies, and CurrentC, trying to route around the credit cards. In both these cases, however, the power lies with the eventual service provider, and that eventual service provider is the same company that they’re trying to route around!
Netflix would be happy if you were to to cancel “cable” and switch to Netflix. But how is that Netflix service getting into your house? Through the wires that probably belong to your cable company. If the cable business goes away, you can bet the price of internet service will increase to cover their loss of profit.
And I expect the banks will do the same to CurrentC. You’re taking all our Visa business away? Fine, the fees for doing your direct withdrawals are going up.
The consumer loses out on every side. They’re getting fewer of the purchase services from their credit card company, they’re losing their personal information to the retailers, and they have less opportunity for recourse when things go bad.
I hope this doesn’t turn into a war between Apple Pay and CurrentC, where retailers pick one or the other, but it feels like that’s the direction it’s going. And we’re stuck right in the middle.