MCX Reveals Plans for Barcode-/Cloud-Based Approach (February 2013)

By Kate Fitzgerald, Emerging Payments Editor

The retailer-led mobile payment venture Merchant Customer Exchange (MCX) has disclosed little about the shape of its developing payment platform since it formed six months ago, but the few details emerging so far are fueling fresh waves of industry buzz.

At a panel during the National Retail Federation’s annual convention and expo in New York City in January, MCX executives and those of its member merchants told attendees the concept’s initial mobile payments solution primarily will be barcode- and cloud-based. That approach would suit the broadest array of smartphones available and enable the widest range of merchants to participate without major new capital expenses, the executives suggested. MCX executive team member Dodd Roberts moderated the panel, which included retail executives from Wal-Mart Stores Inc., Gap Inc., Dunkin’ Brands and Lowe’s, among others.

MCX so far has announced no technology or financial institution partners, but the company “remains engaged in conversations with banks, [card] issuers and other parties” an MCX spokesperson tells Paybefore. Analysts speculate MCX may partner with a major third-party processor to anchor its scheme. MCX also declines to comment on reports suggesting that MCX plans to use the Automated Clearing House (ACH) as a channel for consumer mobile payments. “We have not disclosed which forms of payment will be accepted in the MCX mobile wallet,” the spokesperson says.

Taking the barcode approach, popular with a growing number of merchants following the success of Starbucks’ closed-loop, stored value mobile payments model, could be a faster and less costly way to enable a simple form of mobile payments without committing to NFC, which requires more changes at the point of sale plus a critical mass of NFC-ready handsets, observers say. So far such handsets are still in short supply in the United States, and the overall lack of NFC take-up has caused some skeptics, including PayPal’s president David Marcus, to predict NFC will fizzle in the United States.

The drawback with the barcode route is that QR codes typically lack the compelling, two-way communication features that are most likely to lure consumers to change their habits and embrace mobile payments, warns Randy Vanderhoof, executive director of the Smart Card Alliance, a trade association that supports NFC. “The main value proposition with NFC is the ability to instantly give, receive, store and pass back information between the customer and the merchant,” Vanderhoof says. “Without the two-way feature, there isn’t much to motivate the consumer.”

Not Ruling out NFC

For the record, MCX has not ruled out using NFC, the MCX spokesperson says. But MCX executive team members, including Wal-Mart execs, have previously cast doubt on NFC’s viability and analysts agree it seems an unlikely route for MCX.

One of MCX’s obvious goals is to drive down the cost of payment acceptance, and NFC is generally viewed as a more costly path generally associated with the card networks and related interchange fees, Brian Riley, research director with CEB TowerGroup, tells Paybefore. “Clearly MCX wants to find a way around interchange, and that means using a cheaper path to transfer funds than NFC,” he says. MCX is likely to try “a variety of options that could include using the ACH, riding on an existing payments processing platform or borrowing from decoupled debit concepts,” Riley says. “The problem is that any payment scheme has to pay to support itself and cover the cost of fraud risk, so it’s going to be tricky to find a way to be mobile, secure and cheaper than all the other alternatives.”

The fact that merchants are the architects behind MCX provides advantages and disadvantages in designing a workable platform, says Peter Olynick, leader of the cards and payments practice at payments consulting firm Carlisle & Gallagher. “Individual merchants have deep knowledge of their customers and the tools to create incentives and convince their audience to come onboard a mobile payment piece,” he says. “But the big drawback for MCX is the fact that it’s a conglomeration of different merchants, all with different goals and types of customers, and MCX will actually need to partner with other organizations and financial institutions to be viewed as useful to all parties.”

Launching a payment scheme from scratch is an arduous and costly effort, even with broad cooperation from many potential industry peers, Riley notes, pointing to significant strategy shifts and slowdowns in the rollouts of Google Wallet and Isis after their initial launches. “Each of these concepts has made some major strategy changes after its initial formation, which shows how difficult it can be to build such a system,” Riley cautions.

Observers expect it will be at least a year before MCX officially launches a payment scheme across multiple merchants. MCX so far remains mum about the timing of its rollout. “We haven’t disclosed a timeline as of yet,” the spokesperson says. “But I would encourage you not to confuse a lack of announcements with a lack of progress.”