Weighing in on the Merchant Customer Exchange

On August 15, Target, Walmart and a dozen other big merchants unveiled their plans to collaboratively develop a mobile payments network, Merchant Customer Exchange.  The announcement  created a media  stir, but hardly revealed anything earth shattering to those who have been following the ongoing legal battle between retailers and the card networks.  Retailers are fed up with the open loop payment schemes and in desperate search of an alternative means of accepting payment.   Historically a marginalized group in payments, merchants rightly view mobile as a once in a lifetime opportunity to reshuffle the balance of power within the industry in their favor, but they remain wary of emerging third party mobile payment platforms.  By insourcing their own payment network, merchants hope to A) reduce payment acceptance costs  B) ensure merchant control over customer data, and C) champion merchant friendly security and dispute resolution protocols — in that order.

Despite the natural advantages that big merchants bring to bear in the mobile payment arena (e.g. powerful distribution channels, pre-existing customer relationships, and the ability to offer strong customer incentives for adoption), they are likely to encounter major hurdles if they attempt to go it alone.  As evidenced by the recent struggles of ISIS –an emergent mobile payment platform owned by three of the four major US mobile carriers — to recreate a payment network from the top down is no trivial task.   A merchant group’s ability to do so successfully would depend upon lockstep coordination among the involved stakeholders in addition to major, sustained financial commitments.  It is by no means clear at this moment in time that MCX’s backers, a collection of rival franchises that have built their businesses on cost reduction, have either the necessary level of unity or the financial resolve to go it alone in mobile payments.

In payments, it is the group that most directly influences consumers’ payment behavior that gets to call the shots. If merchants wish to strengthen their position in consumer payments vis-a-vis the networks and the major mobile payment entrants, they will need to find better ways to engage with their customers in-store and at the point of sale. Assuming the monumental challenge of recreating payments anew is neither an effective nor cost efficient way of doing so.  Merchants would be far better served identifying and supporting creative payment products and solutions that lend themselves to rapid and immediate uptake — those that require the fewest changes to ingrained customer and merchant behavior and which offer consumers a tangible and readily accessible value proposition.