Merchants’ Payments Pipe Dreams

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To put it mildly, Tom Noyes’ post What Do Retailers Want? elicited a few reactions out of me.


TN: “A top 5 merchant told me a few months ago “Retailers like Starbucks have proven that we are best placed to deliver value and influence consumer behavior. I don’t want to force my consumers to do anything, but similarly I want to networks that let me play on an even field. These next 5 years are going to be complete chaos for consumers. What do we want them to do? Swipe, dip, chip, pin, tap, QR…? We have been planning for EMV for 3 years… am I really supposed to jump to Apple in 4 weeks?”

My take 1: Delusional thinking on the part of that Top 5 merchant (regarding the Starbucks comment). Starbucks proved that Starbucks could deliver value and influence consumer behavior. Starbucks did what it did with its customer base–which, while large, is not necessarily representative of the general population. Other merchants don’t have the same (loyalty-driven) relationship with their customers that Starbucks does, nor do most other merchants (with the exception of groceries/supermarkets) represent the transaction frequency of a Starbucks (who has many customers making daily purchases).

My take 2: The “next 5 years are going to be chaos for consumers” is overstating the situation. On one hand, yes, the payments world is asking US consumers to make behavioral changes with the distribution of chip and PIN cards. And yes, “we’ve been planning for EMV for 3 years.” One would think that was sufficient time to educate consumers on the requisite behavioral changes, no? Did the move to EMV cause chaos in Europe? (I honestly don’t know). For other payment-related changes, like mobile payments, consumers have a choice–if they wish to change their behavior, they can.

So the comment regarding chaos may be overstated. But it’s also disingenuous. If the quoted merchant is so worried about causing consumers chaos, why is it supporting MCX, which is not only a very different way for consumers to pay (they have to first link their bank accounts to the merchants), but, arguably, more chaotic than Apple Pay, which is really little more than a new method of paying with existing cards.


TN: “What do merchants want? A neutral broker!! [Regarding MCX:] I think their business vision is well placed. They want a network where they can play on an equal footing. A neutral broker.. or at least one where they can have a seat at the table when rules are set. Will MCX be a massive success? It depends on the consumer value proposition. Are the merchants motivated to work together in creating a neutral broker? Hell yes.

My take 1: Please believe me when I say that Tom Noyes is one guy I don’t want to challenge (most of my other comments here address what the merchants said, not what Tom said). But Tom’s view that merchants’ “business vision (re: MCX) is well placed” needs to be backed up better. What exactly does “well placed” mean?

MCX’s business “vision” is fuzzy, at best. My rough estimates suggest that MCX won’t succeed, from an economic perspective. And while it’s open for debate and interpretation, my take is that, regardless of what the CEO of MCX says, the real reason for the consortium is avoiding paying interchange fees. Anything resembling “customer value proposition” is a distant second, at best.

My take 2: I also have to take issue with Tom’s contention that merchants are “motivated to work together in creating a neutral broker.” What merchants are motivated to do is make more money. One way they see to do that is to avoid paying interchange fees. Fair enough. But let’s call it for what it is. This talk of a “neutral broker” and a “network where they can play on an equal footing” is nothing more than spraying the dung pile with perfume.


TN: “One merchant said it this way “Tom I didn’t think we would ever have someone more difficult to work with than Visa and Mastercard, but I was WRONG. Apple is a nightmare! At least we knew what was coming with Visa and Mastercard, with Apple they don’t talk to us, respond to our letters, or offer any kind of value proposition. Why on earth would I want to let another brand in my store without understanding what it will do for me? They are a great company, with great products, and certainly have a much better approach to data than Google.. but anonymity is NOT a value proposition, in fact Apple makes our efforts to deliver value to the consumer even harder as we have no defined way of using Apple to engage our consumers.”

My take 1: At this point in Tom’s post, I’m beginning to feel sorry for him. Must be a bitch spending all day talking to whiners. As for the whining merchant, I feel bad that the rest of the business world doesn’t roll over and play dead and let that merchant do what ever it wants. I can’t help but wonder if that merchant has never talked with some  of Walmart’s suppliers who–I would bet–don’t have a lot of nice things to say about the way Walmart’s policies strong-arm them into doing business Walmart’s way.

My take 2: Considering the number of large retailer data breaches that have occurred in the past year, listening to a merchant whine about Google’s approach to data is precious.

My take 3: The comment “why on earth would I want to let another brand in my store without understanding what it will do for me?” is puke-inducing. First of all, for MCX merchants like Walmart, Target, Best Buy, and (I’m guessing) Sears and Kmart, Apple is already in the store.

Second, if a merchant already accepts an American Express or Bank of America credit card, then why would it care if the transaction was done by having the customer swipe a plastic card or letting the customer hold her smartphone up to a reader? If the reader is already there, there is no difference in the cost of the transaction to the retailer.

Third, here’s a possible answer to the merchant’s question: Because Apple has a stronger brand than you, and aligning yourself with a stronger brand might strengthen your brand, Einstein! And in fact, that’s exactly what is happening–or, at least, could happen–with the banks and Apple (for example, Chase bringing breakfast to people waiting outside for the Apple store to open on the first day iPhone 6 sales). 


Am I afraid Tom Noyes is going to rip my arguments to shred? Hell yeah. But he did say something that makes me think my views aren’t too far off from his:

“Getting a card number from consumer to merchant is NOT innovation. There is just no problem here.”

Totally agree. In fact, that’s why I would argue that MCX isn’t about providing more value to consumers. If that’s what MCX really wanted to do, it could work with MC, Visa, Amex, and Discover–or other firms–to do that.

But the large merchants have set up the payment networks as their adversaries, not partners. Why? Because they lack negotiating power. Much like the situation many smaller suppliers to MCX merchants face, who don’t have much negotiating power dealing with these giant merchants.

Bottom line: Live by the sword, die by the sword. MCX has no future.

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