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Failed CurrentC

According to an article in NFC World about MCX’s mobile wallet (to be named CurrentC):

“Consumers will benefit from using CurrentC in four main ways: 1) Save money with valuable coupons and offers; 2) Earn rewards from participating merchant loyalty programs; 3) Pay simply; and 4) A more secure way to pay.”

My take: In September 2013, I predicted that MCX’s plans for a mobile wallet were flawed. Based on my calculations and estimates, the cost of driving adoption of the wallet (through marketing and discounts) would offset any reduction in interchange fees the merchants realized. I’m sticking to my guns:MCX’s mobile wallet is doomed to fail.

Let’s look more closely at some of the supposed consumer benefits.

***

According to the NFC article, “CurrentC will store and automatically apply offers, coupons and promotions from participating merchants during the payment process.”

No doubt that will be helpful. But how many coupons that a single consumer tracks and manages are from MCX merchants? Don’t you think consumers want an app that helps them manage all their coupons?

And how will MCX determine which (and how many) coupons to offer CurrentC users? Surely, every one of the participating merchants will want to push their coupons out to users. Do you really think consumers want a gazillion more coupons pushed out to them? And if the only way to get a coupon pushed is when a consumer is already in a merchant’s store, that doesn’t really help that merchant with new customer acquisition, now does it?

Furthermore, let’s review again the impetus behind the MCX consortium. If merchants simply needed a place to push out more coupons and drive more business, they could have partnered with Google or Apple. But they didn’t. They set up their own payment processing capabilities, because the real impetus here is avoiding interchange fees.

Interchange fees vary greatly, of course, but it’s fair to estimate that, at a transaction level, the fee ranges from 1% to 5% of the transaction value. Not only will MCX need to offer coupons to drive additional revenue, it will need to offer coupons–above and beyond what’s already available–to drive adoption of the CurrentC mobile wallet.

With a 10% discount on a transaction, MCX will need to drive an additional two to 10 transactions on the mobile wallet in order to recoup the promotional costs. Good luck with that, merchants.

***

The NFC World article also says that “CurrentC will offer customers the freedom to pay with a variety of financial accounts, including personal checking accounts, merchant gift cards and select merchant-branded credit and debit accounts. Additional payment options are to be made available in the coming months.”

Raise your hand if you want to give up on the rewards you’ve been earning on your Amex, Visa, or MasterCard credit or debit cards. I don’t see any hands in the air.

Consumers are not going to give up their existing cards–on an on-going basis–in order to use this mobile wallet.

I recently purchased an oven/stove at Sears (OK, *I* didn’t buy it, my wife did. But she bought it with my money. OK, it’s not really *my* money). To get a discount on the oven, we opened a Sears credit card. When the bill comes, we’ll pay off the balance, and discontinue the card.

Now, with the introduction of CurrentC, how will this transaction work? I would imagine that the salesperson will tell me I could qualify for a discount if I download the mobile wallet, and use it to make some specified level of future purchases at Sears. Really? I’m not going to agree to that. And neither will anyone else. If I can get the discount for just downloading the app–and not committing to future use–then sign me up, baby!

I shouldn’t be giving MCX any advice here, but if they were smart, they would do this payment thing the other way around: START with Amex/Visa/MC cards and, over time, wean users off those cards onto merchant gift cards and merchant-branded credit and debit cards. But what do I know?

***

The NFC World article goes on to say “CurrentC will provide a more secure payment experience than traditional methods by storing users’ sensitive financial information in its cloud vault rather than locally on the mobile device. Furthermore, the application uses a token placeholder to facilitate transactions instead of constantly passing the data between the user, merchant and financial institution.”

Translation: Oh, the hell with it…I have no idea what this means. And neither do millions of other consumers out there.

Remember, this was positioned as a benefit to consumers. But few consumers will have any idea what this means, and very likely, will feel less confident about “storing sensitive financial information in the cloud vault” than they do about current methods of storing data.

***

At last year’s BAI Retail Delivery conference, I hosted a meeting of CMOs from large FIs, which featured Lee Scott, the former CEO of Walmart (who is a member of MCX). I asked Mr. Scott why, in the face of so many failed consortia before it, would MCX succeed?

He said: “I don’t know that it will, and I don’t care. As long as Visa suffers.”

***

Bottom line: I don’t know if MCX will succeed, either. But I’m betting against it.


Ron ShevlinRon Shevlin is Director of Research at Cornerstone Advisors. Get a copy of his best-selling book, Smarter Bank: Why Money Management is More Important Than Money Movement. And don't forget to follow him on Twitter at @rshevlin.

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Comments

  1. 1) I don’t particularly like being told what I’m (consumers) going to like and
    b) I was feeling pretty good about that whole Home Depot/PayPal cloud thing ….

  2. Ron,
    Great candid review! Targets Red Card history may be provide some insight on CurrentC model & potential adoption. Does anyone have data on how successful it has been? ( I don’t). They give a perpetual 5% discount and initially I thought the reduced interchange ( decoupled debit) was the largest part of the business model to target. It is now my understanding that they capture more SKU transaction data that they sell back to the CPG’s to better target customers? I wonder if thats part of the revenue model for CurrentC

  3. “And if the only way to get a coupon pushed is when a consumer is already in a merchant’s store, that doesn’t really help that merchant with new customer acquisition, now does it?” I remember reading somewhere that conversion rate of a visitor to customer in a physical store is around 8% (as against 2% in an eStore). While the exact percentage can vary from retailer to retailer and even store to store, it seems obvious that not every visitor is a customer. If instore coupons can push up this figure, they can drive additional sales via new customer acquisition or existing customer repeat purchase or both.

  4. Point well taken. But as with all marketing efforts, you have to ask “at what cost?” In this case, my assertion is that the cost involved to drive adoption and use of the mobile app could far outweigh any incremental lift in coupon use. If you want to drive in-store purchases, put coupons at the door when people walk in. A helluva lot cheaper to distribute than developing a mobile app, no?

  5. MCX will succeed.
    While your points are well articulated they are far too narrow in scope to predict the failure of MCX.

    There are many other factors that will determine its fate beyond the few you mention.
    MCX has the best chance for success and wide adoption because they are the only consortium that has at least addressed all of the elements for success.

    The road continues to be littered and clogged with offerings that ignore at least one vital component to achieve wide adoption. MCX may not be perfect but at least they have been able to address all of the elements it will take to be a success better than anyone else.

    The rumors around Apple’s solution they seem to be the only other player that looks to have thought about all of the elements. And their installed base and brand image will help them smooth over the areas where their solution may be weak.

  6. I’ve a vested interest in this matter since my company provides marketing services for a couple of such mobile apps (not CurrentC). While I note your point, it’s my prejudiced view that a mobile couponing solution will drive significant incremental conversion and easily pay back for itself. Here’s why: (1) There’s a whole generation out there that can’t handle paper. Printed coupons placed at the entrance of the store would fall flat with them or, even worse, turn them away from the said store (2) On the other hand, when coupons are sent to their mobiles, members of this generation will rush to the concerned aisle without having to master the social skills required to talk to a store attendant – by using instore navigation tech that’s an integral part of the app, of course – and add the couponed products to their shopping basket immediately (3) Having done that, they’ll share the coupon with 1000s of their friends / neighbors / countrymen via WhatsApp or whatever app, create a viral effect and drive massive number of incremental footfalls for the store (4) Brands will readily defray the retailer’s cost of developing and marketing such an app because they’re the obvious beneficiaries of this technology. For example, if a visitor goes to the ARROW section and then hovers around the aisles where competing shirt brands are stacked in the store – aforementioned instore navigation tech delivering all of this insight handily – ARROW can send a highly targeted offer to swing the deal in its favor. Opt-ins and any other permissions required for making all this work will be obtained while the app is downloaded and installed.

  7. LA: Thanks for leaving a comment.

    When you say that MCX has “addressed all of the elements for success”, what are the “ALL elements” you are referring to? Are “consumer preferences” and “customer experience” part of that list of success elements? I would hope they are, and I would argue that MCX has NOT addressed those elements.

    Is “potential competitor offerings” part of the list of success elements? I would hope it is, and I would argue that MCX has NOT addressed that element, either.

    In the end, I may be very wrong about MCX’s success. But, as of now, your counter arguments against my reasoning amounts to little more than fact-less assertions. And please keep in mind that my definition of success here is “profitable.” MCX may succeed in driving millions of downloads, millions of transactions, and hundreds of millions in mobile purchases. My assertion is that, to do that, they will spend more than they will save in interchange.

  8. I’m a strong supporter of the eCoupon concept. But take a step back–why did merchants and retailers stuff thousands of coupons into FSIs in the middle of Sunday newspapers? Because those newspapers went to millions of people. In other words, the distribution platform for those coupons was already in place.

    The distribution platform for eCoupons is NOT necessarily in place. MCX may do a great job w/ CurrentC to become that platform. Even if it does, my argument is that people will NOT change their choice of payment mechanism. That’s the key issue here–not coupon use/adoption, but choice of payment method.

  9. I’ve heard people say that newspaper inserts go from “porch to trash”. But, since I’ve personally spotted many good offers from that channel, I agree with your point about distribution platform. As for influencing the payment method, that’s definitely a harder nut to crack. That said, Retailers / MCX could be hoping that they can drive a change in the payment method by offering exclusive deals on the mobile app and stipulating that these deals can be redeemed only by paying with the associated mobile payment method (doesn’t the Starbucks App work somewhat like that?). I know this requires two IFs to happen together. From whatever I remember of conditional probability, that’s a long shot (even at Starbucks, contrary to popular opinion: http://gtm360.com/blog/2014/01/02/mobile-wallet-has-few-takers-even-at-starbucks/).

  10. Although you’ve clearly defined “success” at the very start of your post, I somehow went with the zeitgeist of mobile wallets and assumed that “fail” meant lack of downloads, transactions and purchases. Now that you’ve reiterated that success means profits, I completely agree with you. In fact, I’ve long held that retailers are pipedreaming if they think they tweak the existing credit card / bank account rails to come up with an alternative payment method that saves them money (http://sketharaman.com/blog/2011/05/20/do-american-retailers-want-to-have-their-cake-and-eat-it-too/). That said, a radically different payment method like “on demand credit without credit card” could prove profitable for retailers. Although it carries a higher credit risk, the track record of Klarna is encouraging: The Swedish alternative payments company offering this payment method is reported to be profitable from Day One despite charging a fee of only 1.5% of transaction value, which is lower than credit card interchange.

  11. It strikes me that the true goal for MCX is fight for lower transaction fees. Your final anecdote seems to support this. I can understand the attractiveness of this for all retailers. I would argue that it is incumbent upon the current credit card companies to pass along the savings of reduced fraudulent card usage from lost, stolen, skimmed cards to be had from the more secure Apple Pay (and perhaps other e-wallets). A 2% reduction in transaction fees on Apple Pay purchases could make the hassles and uncertainty of the MCX effort moot for most retailers. I don’t care how many discounts are offered, Q-code scanning, financial data sharing, direct account debits, and questions about individual profiling is not going to fly with savvy consumers.

  12. Spark: I agree, in principle, that MCX’s goal is lower transaction fees. But really what they’re looking for–and there is absolutely nothing wrong with this–is increased profitability. To that end, there are many paths. Why not slash advertising by 50%? Supposedly 50% of advertising is wasted, so why not find out which half, and cut it? Retailers could improve profitability in any number of ways. But they’ve chosen to fight interchange fees because it was a political battle they believe they could win–and have been winning.

    I think you have a strong point when you say “it is incumbent upon the current credit card companies to pass along the savings of reduced fraudulent card usage…” But, in that light, shouldn’t merchants and retailers have passed on the savings to consumers from the reduction in debit interchange that merchants got with the Durbin Amendment? Yet, there are a number of studies that have shown those savings never got passed on to consumers.

    And your logic regarding the reduction in fraud doesn’t hold water–the “savings” that issuers might see are already getting passed on to Apple, who the reduction in fraud is attributable to.

  13. Michael Long says:

    Former Walmart CEO Lee Scott is reported to have said, “I don’t know that MCX will succeed, and I don’t care. As long as Visa suffers.”

  14. Points 3 and 4 (Pay Simply and A more secure way to pay) are absolutely NOT better than NFC, and this is where it will fail.

    First, “Pay Simply”… ever tried to scan a QR code that’s being displayed on your phone? It’s hardly reliable. Based on the strength of the optical reader, the angle that the device is being held and the quality of the display of your device, scanning codes isn’t always successful. NFC is wildly more seamless. Additionally, the whole thing about having to open the app first isn’t as seamless as Apple Pay. Apple Pay takes less than 5 seconds to purchase something with ZERO screen interactions.

    Second, “More secure”. This is laughable. Cloud services get hacked. A credit card number on an encrypted phone protected by a fingerprint is much more secure. At least when my credit card number gets leaked or hacked, I know that the credit card company is going to cover the fraud. What happens when CurrentC servers are hacked and my checking account info gets loose? Is MCX going to cover the fraud? On this same point, credit card companies currently stand by their cardholders on disputed transactions with merchants involving things like overcharging, defective merchandise, etc. What’s the likelihood that CurrentC is going to do the same?

  15. You know I’ve got a keychain full of loyalty cards and a little drawer full of the darn things in my desk. And every time I go shopping at any of these stores, with the targeted advertising/coupons these loyalty cards were supposed to enable, I get a very long receipt containing several coupons or a handful of loose coupons. Never yet have any of those coupons been for anything I would even remotely consider purchasing. This MCX nonsense is a loser out of the gates if the current loyalty cards are any sort of indicator.

  16. Johny Belkin says:

    Credit card companies are parasitic beings mooching of transaction fees and interest and all sorts of fees from consumers. Wouldn’t it be nice if they just vanished? Well, MCX would like to get into the action and reduce transaction fees for the consortium members. But do I think they will reduce the fees for the consumers? I seriously doubt it as it is too sweet of the deal. So I would rather stay with evil I know than support something I don’t. Credit cards will persevere in my valet.

  17. This whole thing reminds me of Circuit City’s DIVX: it was clear to see all the benefits to the business, but the benefits to the consumer were murky at best. These are products that are created from the point of view of the merchant, which is a backwards way to produce and market a product. When it comes to Apple Pay, the benefits to me are obvious. When it comes to CurrentC, what is the benefit to me? I get that it cuts out the card companies and the associated merchant fees, and that it collects data about my shopping and buying habits, and that it creates a great trail of marketing bread crumbs, and that it hooks directly into my checking account (but not my credit card accounts), and that it causes pain to VISA and MC – and none of that speaks to me, the consumer. In fact, some of it actively turns me off.

    But maybe the biggest thing of all is simply this:

    Apple Pay: remove phone from pocket, input fingerprint on home button, done.
    CurrentC: remove phone from pocket, enter PIN or fingerprint to bring phone to home screen, open app, wait for app to connect and update on attempted transaction, scan a QR code, wait for transaction to validate…

    The QR code thing alone is a deal-killer. Why would I want to mess with all that, as opposed to swiping my phone near a terminal and being done with it? And, lol, what makes anyone think that Apple will even let this app exist in their curated app store? Or Google, for that matter?

    This proposition is a loser from the very start, and I can totally imagine how a room full of business people talked themselves into it anyway, by casting eyes at the benefits to the business while completely failing to recognize the challenges of getting the consumer to accept it. Ultimately, consumers will decide if this initiative fails or succeeds, and I can’t imagine why consumers would be chomping at the bit for CurrentC over Apple Pay or Google Wallet. I know for a fact I won’t.

  18. I appreciate your disclaimer about your interest in this. I would respond to your points thusly: 1) There’s a whole generation (or two or a few) out there who couldn’t care less about coupons. I’m 45, hardly a young pup, and I can count the number of coupons I use during the year on one hand. I frankly find coupons to be much more pain than they’re worth, and I don’t know a single serious “couponer” in my social circle. People like me regard coupons as one step above junk mail, and usually not worth my time or attention. And as for my daughter’s generation – heh, forget about it. 2) If any app sends me a coupon on my mobile phone, that app is getting deleted pronto. 3) You must be joking. And 4) follows from all of your previous points being true and working perfectly, and I’m telling you right now that only marketers think any of this stuff matters.

    Give me ease of use and total convenience. That is what I’m seeking. If I have to actually open an app and scan QR codes, there is no way I’m using that app for payment of any kind. CurrentC offers me no benefits whatsoever, especially compared to Apple Pay, which in contrast offers me several very tangible benefits – convenience, security, anonymity. If coupons is the best you can do, all while tracking my shopping habits and putting my checking account at risk in the cloud…good luck with that.

  19. @seattlekarma: I see that my subtle attempt at sarcasm didn’t work. Next time, I’ll remember to explicitly enclose such comments between the & tags:)

  20. @seattlekarma: I see that my subtle attempt at sarcasm didn’t work. Next time, I’ll remember to explicitly enclose such comments between the sarc & /sarc tags:)

  21. [[With a 10% discount on a transaction, MCX will need to drive an additional two to 10 transactions on the mobile wallet in order to recoup the promotional costs. Good luck with that, merchants.

    ***

    The NFC World article also says that “CurrentC will offer customers the freedom to pay with a variety of financial accounts, including personal checking accounts, merchant gift cards and select merchant-branded **credit** and debit accounts.”]]

    Seems the first claim is missing the real driver implicit in the following paragraph: if you’re able to start pushing credit, you’ll have another obvious revenue stream.

    And you obviously don’t need 10 transactions from every buyer. A few whales pay for as lot of cheapskates.

    The bigger the store revenue, the smaller percentage of users you need utilizing your system to make this worth doing. Target’s Red card really demands some interrogation here. It’s not a question if the majority would like this better than credit cards. It’s if a profitable percentage would like (where “like” == “produce more revenue”) this as much or more than Red. That seems a pretty good bet.

  22. Good arguments both ways. I see the use case for CurrentC but also agree with the user experience challenges… which hopefully will improve as this evolves.

    I love my Apple device and plan to purchase the iPhone 6 – but not everyone drinks the Apple kool-aid. So the argument to use Apple Pay for Android and other platforms is irrelevent.

    CurrentC seems is evolutionary, not revolutionary. It may not make strategic sense over NFC. And perhaps general use of QR codes won’t have a long life (and thus the implementation and marketing costs could be challenged in terms of ROI). But at this point it is easy technology to deploy for a broad set of devices including those lacking NFC capability.

    Today I use my non-NFC-capable iPhone 4S to buy coffee at Starbucks and Tim Hortons (both apps use QR codes) even if it is more clumsy and time-consuming than pulling out a plastic gift/loyalty card. Call it geek/cool factor, or simply not wanting to carry change or a wallet, ever. Using MCX in comparison is no different, other than restricting payments to debit and in-store (private label) credit cards.

    There is room in the market for both Apple Pay and MCX… they don’t need to compete against each other.

  23. Alex: You make some great points, and I would agree that there is room in the market for Apple Pay and MCX. But they DO need to compete against each other. Apple Pay is simply a mechanism to pay with an existing account from an existing issuer, that flows through the existing payment networks. Which means interchange is charged to merchants. MCX is an attempt to avoid interchange. For MCX to succeed, it MUST get consumers to change their existing (and currently predominant) behavior.

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