Apple recently launched its new payment system, Apple Pay, which allows customers to purchase items from physical stores using their iPhone and iPad. This idea has been around for quite some time and Google was the first to market with Google Wallet. Both ideas allow users to simple go to a register, pull out their smartphone with the related app and tap it against a receiver. The technology used to transfer the money is Near Field Communication (NFC) which is the same concept as tapping two phones together to transfer information, money, apps or files.
As convenient as this technology may seem, several major retailers, like Walmart, refuse to accept the payment system. The logic behind their decision comes down to two reasons:
1) Credit card fees
2) No personal information is given
3) Breach of contract
Credit Card Fees
Each time a consumer swipes their credit card for a purchase, the retailer must pay a small fee to the card company and bank. Although it may not seem like much, across millions of transactions, the cost adds up quickly. Since Apply Pay is linked to the user’s credit card, retailers must still pay the fees.
No Personal Information is Given
When a customer uses a credit card to pay, the retailer does not receive any information like when the consumer uses a debit card. Apple Pay requires a credit card and does not share information with the retailers about the consumer. This limits their marketing potential at the register.
Breach of Contract
The major retailer chains like Walmart, Target, Rite Aid and CVS, are members of the Merchant Customer Exchange (MCX). Each of these retailers uses a payment system known as CurrentC which helps to mitigate credit card fees. Therefore, if one of these retailers decides to accept Apple Pay, it will result in a breach of contract with MCX and face hefty fines
Future Payment Systems
Credit card companies take from 2-3% for each transaction. According to BI Intelligence Analyst, John Heggestuen, retailers paid around $48 billion in credit card transaction fees in 2013. To reduce those fees, the retailers formed MCX which has developed and will soon launch CurrentC. This app allows consumers to pay directly from their checking account by scanning a bar code on the phone. The money for the purchase is deducted directly from the customer’s bank account. This completely disrupts the credit card model by cutting them out.
Another future payment system is mobile billing which allows customers to charge all online purchases to their phone bill and pay it at the end of the month. The best aspect of this payment method is that the consumer does not need to own a smartphone to make purchases. For security, consumers can simply enter a confirmation code or authorization pin.
Virtual payment systems are the wave of the future as they reduce the cost to produce physical money and could potentially eliminate store robberies in the future. Although Apple Pay is not being adopted as planned, other similar virtual payment systems will soon become the norm.