CurrentC And The Big Merchant Mess

Whoever said there’s no such thing as bad PR obviously wasn’t on the receiving end of the whooping that Rite Aid, CVS and CurrentC took last week over their decision to turn off support for Apple Pay in their stores.

It’s unlikely that anyone thinks that the coverage last week had even the tiniest glimmer of goodness associated with it for any of those guys. Wait, I take that back. It did actually popularize the new CurrentC brand name. Everyone now knows that CurrentC is the name of the mobile payments scheme that won’t let consumers use Apple Pay at their favorite retailers.

Unfortunately, for CurrentC, this is also the story that just won’t die, and in fact is now riding a fever pitch. If anything, the invite-only press briefing mid-week only made matters worse for them as contradictions and vagaries were in abundance. And, that only caused the media, now totally dialed into this story, to dig in even more.

In particular, the claim made by CurrentC’s CEO that its merchants can do what they want, at the same time they are bound contractually and exclusively to CurrentC’s in-store mobile payments scheme was only slightly more hilarious than the tease that it might include general purpose payments cards in its wallet one day. Anyway, by the end of the week, even America’s mainstream newspaper, USA Today, described CurrentC as so discombobulated that it appeared to be run by the Three Stooges.

But one of the most striking observations here is how this has gone from an “inside baseball” story about the war between the retailers and the payments “establishment” and the retailers’ desire to create a new set of cheaper rails, to a war on consumer payments’ choice. That’s the talk track now in every newspaper, blog and TV news broadcast (including the morning TV shows) because, well, that’s what it is. It’s also a testament to the power of the Apple brand and the sheer and simple fact that CurrentC merchants are being forced by CurrentC to pick a fight with their consumers over something that’s always been a pretty basic part of their shopping experience: the freedom to choose their payment method of choice at checkout.

It’s a real mess.

In fact, that’s how I ended my interview last week with CNBC. And, unfortunately, the people who are being hurt the most by this self-inflicted mess are the very stakeholders whom CurrentC said they were forming their merchant coalition to help – the merchants.

So, how exactly did they end up in such a mess?

Well, for one thing, it’s just taken too long for CurrentC to get a product in market. It’s been three years and over that period of time, the options with respect to using mobile payments in store and online has moved very quickly. You snooze you lose and CurrentC seems to be on the wrong side of the market.   Maybe if CurrentC had a compelling mobile payments alternative to offer its consumers last week, the story might not have spun out of control. But at the moment, CurrentC has no product in market but lots of promises that there’ll be something great sometime in 2015 that consumers will love. And until, then, it’s no Apple Pay – or any other mobile payments scheme or even contactless cards  – at CurrentC merchants.  It’s gotta be  increasingly tough to keep existing members in the boat not to mention bring new ones on board.

So, what’s taking CurrentC so long?

I have some thoughts – actually a few of them.

First, I don’t think it’s a technology issue, in spite of the pretty pathetic app reviews CurrentC has. Sure, CurrentC made a vendor switch mid-stream, but that provider has a product in market that works pretty well – and presumably, that’s why they were chosen. I’m sure that they’d tell you that it doesn’t take 15 months to turn on a handful of merchants, especially after having had two years for those merchants to examine and detail and document their technology environments and requirements.

So, that leaves a bunch of other hair balls that must be getting in the way of getting CurrentC to market.

Here’s a pretty big one.

How in the world does CurrentC ever reconcile successfully the needs of Walmart – its largest member – with the needs of every other member merchant?

Let’s be clear. Walmart’s MO with respect to CurrentC is to reduce the cost of payments’ acceptance. If that weren’t the case, their former CEO Lee Scott wouldn’t have been quoted as saying, when asked about how profitable CurrentC would be,  “I don’t know that it will, and I don’t care. As long as Visa suffers” An interesting comment, for sure, especially since all of the tears shed over interchange at Walmart are likely of the crocodile variety given what I’m sure are already pretty low negotiated rates.

But Walmart has a pretty unique set of customers. Many of them are disproportionately low income and disproportionately use cash and even food stamps to pay for things at Walmart. Moving those consumers to any form of digital payment, never mind Apple Pay, is going to cost them more, if you believe that cash is a cheaper form of payment.

But that’s the way the world is moving and even low income consumers have smartphones and will want to use them to pay for stuff at Walmart eventually. All this is to say that Walmart’s concerns over increasing the cost of payment is real on the one hand, but a reality they’ll have to face if they want to meet the demands of a digital consumer.

So, in spite of the spin we heard last week from CurrentC, reducing the cost of payments by creating a new and cheaper set of rails is prima facie why CurrentC exists and why Walmart has such a strong presence.  Its objective from day one was very clearly to disintermediate the card networks in a digital commerce world.  And, since 90 percent of spend still happens in physical stores, that’s where the battle lines were drawn. It’s why its contracts didn’t address online payments and, therefore, why NFC got turned off at Rite Aid and CVS so that Apple Pay can’t be used.

It’s that simple.

But it’s also that stupid.

Consumers can still use the plastic versions of the credit and debit cards that they’ve downloaded in their Apple Pay wallets at CurrentC merchants.  And those cards are just as expensive for the merchant as what’s in the Apple Pay wallet, but arguably more secure. And, in what’s even more of a head-scratcher, Walmart.com, which is growing like a weed and a high priority for Walmart, accepts all forms of payment online, including PayPal.

It’s pretty hard to explain the inconsistencies in payment acceptance to a consumer who moves fluidly these days between channels thanks to their use of mobile devices and doesn’t care what it costs merchants to accept the method of payment they want to use.

Here’s a thought.

If CurrentC merchants really object that vigorously to card processing fees, they could stop accepting cards. But they won’t because merchants, whose primary business is selling stuff in their stores, don’t want something like payment to get in the way of making a sale.

Which is why it remains so unbelievable that CurrentC would force its merchants to pick a fight with the most popular consumer brand in the world – Apple– particularly when they have nothing to offer the consumer today as a mobile payments alternative.

Now, the standoff between CurrentC and Apple Pay has become a matter of basic human psychology. The more consumers are told they can’t do something, the more they want to do it, even if they had no intention of ever doing it in the first place. CurrentC did more to drive demand for Apple Pay last week than anything that Apple or the networks did, for sure.  As my colleague David Evans said last week, it was like scoring a goal for the other team.

Here’s another theory about why CurrentC is taking so long to get out of the starting blocks.

I’m sure that another big sticky wicket is how to monetize its new set of rails.

Since like forever, merchants have subsidized consumers in the two sided market of payments because they want to make it easy for consumers to pay for the stuff they buy in their stores. And for like forever, those consumers have gotten a free ride and a good deal. In addition to having an easy way to pay and an ability to even finance those purchases if they want to, consumers are rewarded handsomely for using some payments types. That funding, as we all know, comes from the fee that is paid by those merchants to the issuing banks when those cards are used.

Now, as far as I know, there’s no CurrentC-branded pixie dust being sprinkled over its new set of rails that can eliminate their operating costs. And, there will, of course, be costs, and lots of them. So, who pays for those costs and how much do they pay?  Will some members pay more and how are those costs calculated and then allocated? We know for a fact that asking the consumer to pay is DOA and if CurrentC wants to get consumers on board, they’ll need to be given lots of incentives to do that – lots of them. And, that will cost money.

Speaking of the consumer, here’s another topic that has probably given CurrentC some heartburn recently: the CurrentC product and its value proposition to consumers.

As we understand it, the primary CurrentC product is a branded ACH debit product that requires a consumer to provide her checking account information to CurrentC (or its merchants) to establish an account. In 2012 and 2013 that might have sounded easy.

But in 2014 and beyond, that seems like a particularly tough sell to consumers who have watched merchant after merchant after merchant get hacked. I would wager that the consumer’s interest in handing over their checking account information to merchants – or even an merchant coalition – is probably somewhere between slim and none right about now. (Yes, I know that us insiders know that handing our checking account details over isn’t any different than using a debit card but consumers are still squeamish about it.) This has likely forced CurrentC to move the issue of liability in the event of a breach to the top of the priority pile. The CurrentC network runs over ACH rails which doesn’t have chargeback and real-time fraud monitoring capabilities. It also doesn’t “come with” zero liability – the CurrentC network would have to establish that as a policy and then fund it – and that costs money.

Here’s how one of their members chose to handle the issue – they outsourced it to the card networks!  Target, post-breach, made a decision to issue MasterCard branded EMV REDcards to keep consumers from defecting, a decision motivated by either real or perceived concerns that consumers would stop using them. Here’s what Target’s CFO had to say in April when the decision was announced: “As we aggressively move forward to bring enhanced technology to Target, we believe it is critical that we provide our REDcard guests with the most secure payment products available. This new initiative satisfies that goal.”

Yep. Curiouser and curiouser.

Another issue that may be throwing sand in the wheels of CurrentC progress is data – who gets it and how it’s used.

You’ll recall that giving merchants access to their customer’s data was said to be a key driver of the formation of CurrentC. But how will that work in practical terms? How is the data collected? Where does that data reside and who has access to it? And, who gets to use it and how? And, how do consumers benefit?

Remember when merchants threw up over Google Wallet when it was launched over the fear that Google would use its transaction data to market to its competitors?  The conversations at CurrentC HQ have to be a little deja-vu all over again since CurrentC membership includes lots of companies that compete directly and bitterly with each other.  This is a non-trivial issue since how data gets captured and used is an important component of the CurrentC product value proposition which will turn that data in to consumer offers and promotions.

When all of these issues are taken together, there has to be big time tension now between the finance people, who brought CurrentC to life and whose focus is about cost reduction and the marketing people who just want to make it easy for consumers to pay for things they want to sell in their stores.

And, if this wasn’t an issue before last week, it’s clearly one now.

The risk that the marketing people are now facing to the sales bottom line is not only losing Apple Pay customers but mobile-toting consumers who keep hearing the mainstream media talk about a group of merchants that won’t support any mobile payments method except a yet-to-be-seen-and-totally unknown product that requires that a consumer hand over checking account information to create an account.  It puts the merchants in an impossible position of having to defend something that’s pretty hard to defend, since CurrentC has refused to provide any specifics at all about its product offer, including when it will be available.

So, how does CurrentC to get out of this mess?

Well, I don’t think they do.

I believe that this is the beginning of a huge reboot at CurrentC and quite possibly its complete unraveling.

First, I think the marketing folks at CurrentC merchants, driven by what is (or will be) CEO and Board level pressure, will force a decision to accept Apple Pay.

We’ve already seen one grocery store, Meijer, announce that it won’t turn off NFC so will accept Apple Pay. That’s a first and I think pretty big crack that will only get bigger and provide cover for other merchants to follow suit. And, that will open the crack even further for other mobile payments schemes to walk in with solutions – NFC and QR codes –  who will point to the CurrentC’s CEO’s statement last week that merchants who chose to do so will face no fees or fines.

That, will certainly devolve into a larger conversation about what CurrentC is, what value it delivers to merchants and consumers and why it should even exist at all.

Here’s one thought on that topic.

When I wrote my MCX fairy tale last year, I suggested at that time that it wasn’t really clear what the end game was. Was it a ploy to reduce interchange?  Was it a new network? Or was it a some sort of a merchant platform/ecosystem that would vet technology and emerging solutions, enable a consistent set of product offers and solutions across all merchants that could also leverage the buying power of all merchants so that they could get favorable pricing on those products and solutions?

I kinda thought that the  last option had the most likely chance of success since it had clear objectives and deliverables, a process for delivering tangible value to merchants and consumers and a mechanism to engage the members of the existing ecosystem in a constructive way.

If anyone in CurrentC land is still reading, maybe now’s the time to resurrect that idea.

I’m very sympathetic to what merchants are facing today. They’re being barraged by change and new initiatives – all coming at them at the same time. EMV and breaches and mobile payments and tokens and offers and loyalty schemes and how to use data better and what to do at the point of sale – are all mission critical issues and all need to be addressed  now.

At the same time, merchants face the loss of foot traffic in their stores and the realization that they need to deal with their consumers in new and different ways – consumers who have mobile devices and shop and buy differently now. The opportunity has never been more exciting, but the stakes never been higher to get it right or the environment more complex. Merchants large and small are drinking from a fire hose.

But it’s time for CurrentC to realize that the mobile payments landscape is a lot different today than it was when it was conceived three years ago. And despite the recent article that says a cheaper payments message to merchants trumps all and that we’re big dopes for not understanding that, to acknowledge that waging a public battle that now has the consumer’s attention over the cost of payments’ acceptance pales in comparison to the impact of consumers taking their business elsewhere and their feelings to social media when they ‘re denied the ability to use a payments method thatthey want to use.

So here’s where I come out on this.

We’re in the very early days of mobile payments. It’s way too early to crown winners, and that includes Apple Pay for a variety of reasons. Everyone is competing vigorously and intently for the consumer’s hearts and minds and digital wallets. Apple Pay may have the backing of the established payments ecosystem, but they, at the same time, are working very hard to drive adoption of their own digital accounts. Visa Checkout was a very big topic of conversation during Visa’s last earnings call and claims to have 2x the number of registered accounts as Apple Pay. Ajay Banga at MasterCard was quoted as saying that “MasterPass picks up where Apple Pay leaves off.”  And why wouldn’t they do this?  The market for Apple Pay is only the Apple ecosystem and the people who own iPhone 6’s and the world of payments is a whole lot bigger than that.

If CurrentC has a great product that consumers want to use, then they’ll use it and if it’s a really great product then consumers will use it more than competing digital products. That’s how it’s always been. Just ask any innovator. But CurrentC should live or die just like every other emerging payments player including Apple Pay will – on how much consumers love using and not by denying consumers the chance to make their own decisions about the digital payments experience. And, ultimately what will drive that won’t be about payments anyway, it will be about all of the stuff that wraps around payment that makes the shopping experience more valuable and gives the merchant the chance to, oh, actually sell more stuff.

So, that makes the CurrentC model seem largely out of step today and even an anchor around the necks of almost every single member of that merchant group.  It forces merchants to pick a digital payments winner – the CurrentC product – and for consumers to either like it or lump it if they want to use their mobile phones to shops in their stores.

That sounds like a  pretty big no-win proposition all the way around, at just the point in time that everyone has the opportunity to benefit from the innovation  that’s adding lots of new value – and incremental revenue – to the consumer’s and merchants’ shopping and buying experience.

And when the clock is ticking. And when the race for consumer mobile payments preference and adoption is getting more intense by the day.