CVS, Rite Aid Short-Sighted On Apple Pay - InformationWeek

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IoT
IoT
Mobile // Mobile Business
Commentary
10/27/2014
11:01 AM
Eric Zeman
Eric Zeman
Commentary
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CVS, Rite Aid Short-Sighted On Apple Pay

Both pharmacy chains pulled the plug on Apple Pay over the weekend, favoring a less consumer-friendly mobile payment alternative.

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Mobile payment services have so far been slow to find success. The reason? Too many fingers in the pie. Every entity involved wants a slice, and there's only so much to go around.

CVS and Rite Aid have decided to take the low road. Over the weekend the two pharmacy chains killed support for Apple Pay in their stores because they'd rather back a payment service they can control than one that benefits their customers. In other words, it's all about politics.

Apple Pay launched on October 20. It is available to the iPhone 6 and iPhone 6 Plus, which have the necessary NFC radio. Apple claims Apple Pay is available at 220,000 locations around the country, at dozens of retailers. According to Apple's website and press materials, neither CVS nor Rite Aid signed up for Apple Pay. However, because both have NFC terminals in their stores, some shoppers were able to make payments at CVS and Rite Aid with their iPhones for several days after Apple Pay went live. It wasn't long before CVS and Rite Aid caught on and stopped accepting payments via Apple Pay.

While Apple and CVS have yet to speak up, Rite Aid provided an official response: "We are continually evaluating various forms of mobile payment technologies, and are committed to offering convenient, reliable, and secure payment methods that meet the needs of our customers," said spokesperson Ashley Flowers to Businessweek. But Rite Aid's words ring hollow.

[For more on Apple's new mobile payment system, see Apple Pay: Where To Use It.]

CVS and Rite Aid belong to the Merchant Customer Exchange (MCX), an alternate mobile payment service that won't go live until sometime in 2015. The MCX's biggest backer is (guess who!) Walmart. The MCX is developing an app called CurrentC, which users will eventually be able to use to make payments at CVS and Rite Aid stores, along with about 50 other merchants.

There are several key differences between CurrentC and Apple Pay. CurrentC will require users to add a debit or credit card to their device. Payments are facilitated by scanning a QR code on the device screen, so to make a payment users will need to wake their devices, then find and launch the CurrentC app. Apple Pay, in contrast, is much easier and faster to use: It requires users to simply tap their iPhones on the payment terminal. You don't need to wake the iPhone before making a mobile payment.

The other difference is the how MCX approaches the back-end. Apple decided to work with MasterCard, Visa, and American Express, three of the largest payment networks. These payment networks, along with their bank issuer partners, each grab a small piece of each transaction whether consumers hand over their card or use Apple Pay. MCX wants to cut the card issuers out of the equation to save transaction fees. CurrentC will probably also allow merchants to snag customer data and enable loyalty programs and discounts. Apple Pay is entirely anonymous; merchants don't get any customer info during transactions.

Apple created Apple Pay to be as easy as possible for consumers to use. That's why it partnered with the three large payment networks. CurrentC is more about rewarding merchants than easing the payment process for consumers. Walmart is the country's largest retailer and clearly has the most to gain -- or lose -- in the turf wars with MasterCard and Visa. It's pretty easy to connect the dots.

Understandably, MasterCard says CVS and Rite Aid have made a mistake. "We think consumers should have the ability to pay any way they want,” said Ed McLaughlin, chief emerging payments officer at MasterCard, to the New York Times. "Rite Aid and CVS have been accepting contactless payments for quite a long time. Apple Pay is the most convenient, most secure, and what’s best for consumers. That’s what will win out in the end. We look forward to them turning the functionality back on in their stores."

The whole situation speaks to the complexities of mobile payments. Rival systems that benefit retailers over consumers are the very reason it's taken so long to get mobile payment solutions to market. The issue isn't technology -- it's politics and greed.

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Eric is a freelance writer for InformationWeek specializing in mobile technologies. View Full Bio
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Angelfuego
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Angelfuego,
User Rank: Ninja
10/31/2014 | 11:25:51 AM
Re: Less user friendly...
Their reasoning makes sense, but I am just surprised. I wonder what the effect it will have on Apple and what will be their new plan, if any at all. For instance, I wonder if ApplePay will reduce their transaction fees. If not, I can see other merchants joining the bandwagon with CVS and Rite-Aid by pulling the plug on ApplePay. Apple, in general, is such a craze, but I think more and more competition is creeping up.
jgherbert
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50%
jgherbert,
User Rank: Ninja
10/30/2014 | 11:32:14 PM
Re: Less user friendly...
@moarsauce123> "...but also by a significant margin less expensive. ApplePay as insane transaction fees that make that system uninteresting to many merchants."

[Citation Needed]

When I searched for Apple Pay interchange fees, I really couldn't find anybody stating actual rates. What I did find were articles saying that Apple was not charging retailers anything, and its cut came from the interchange fee. Apple has also negotiated discounted fees from the providers with which is it partnering -- http bankinnovation.net/2014/09/apple-said-to-negotiate-deep-payments-discounts-from-big-banks/ -- so it's possible they could keep the retailer fees the same, pay the providers the discounted rate, and pocket the difference. I don't know. Can you point us to a reference that outlines the "insane transaction fees" you're talking about? I'm happy to believe it, but I've just not seen anything yet saying it's the case.
jgherbert
50%
50%
jgherbert,
User Rank: Ninja
10/30/2014 | 11:25:50 PM
Re: Unbelievable bias...
@GAProgrammer>

"I love how these "tech journalists" jumped right on board and said Apple Pay was going to be revolutionary, while knowing little to no details about HOW it works, then turn right around and trounce CurrenC, which isn't even implemented yet."

Did we read the same article? Where does the article "trounce CurrenC (sic)"? It seemed to me that Mr Zeman made a fair stab at comparing and contrasting the two approaches. If by trouncing you mean pointing out that CurrentC looks like it will - at least initially - require a phone to be unlocked, an app to be launched, a code scanned, then a code offered up for scanning, well that's what MCX says is happening. The part that's missing in most articles is that MCX also acknowledge that there's no reason why they can't use NFC for the transaction as well - but I guess their idea is that by making something that works on 80% of smartphones rather than just the iPhone 6, they're hitting a bigger market. And perhaps they are; in which case, why is Apple Pay such a threat to the retailers here?

"many will just not read because of the blatant bias of the article"

Are you kidding? The headline is pure troll bait; it'll suck 'em right in, if only to rant against Apple Pay ;-)

"These two companies are already in heavy competition and margins are low, so I don't blame them one bit for not wanting to lose 1%. Rite-Aid alone had retail sales of 25.4 billion, so 1% of that is 254  million. Sounds like a sound business move to me!"

On the surface what you say sounds right. What's curious though is the thought process that makes these retailers thing that by shutting out another solution, people will use theirs. From their own descriptions of CurrentC, I am struggling to see a benefit over just paying with a credit card - in which case they're losing those fees to the CC companies anyway. They're also fighting a reputational problem because retailers have gotten a very bad rap in recent years over data security, which is likely to be a real roadblock for people considering their service. And since I have an iPhone, I have zero reason to install CurrentC - so not only am I not using their system, but I'm likely to move all my business to somewhere that does accept Apple Pay.

That said, one thing that works out hugely in favor of CurrentC is that two weeks ago nobody knew who or what the heck "CurrentC" or "MCX" even was. Now pretty much everybody knows there's another payment system on the horizon, and you won't need an iPhone for it. So on the subject of free publicity, not needing an advertising wing, and bearing in mind the maxim that there's no such thing as bad publicity, CurrentC must be pleased as punch right now, and are probably breaking out the champagne for the heads of CVS and Rite-Aid. ;-)

All MCX / CurrentC need to do now is to not get hacked. Ah. Oops.
moarsauce123
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moarsauce123,
User Rank: Ninja
10/30/2014 | 7:40:09 AM
Less user friendly...
...but also by a significant margin less expensive. ApplePay as insane transaction fees that make that system uninteresting to many merchants. They are not willing to pay the Apple tax.
hho927
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0%
hho927,
User Rank: Ninja
10/28/2014 | 1:53:56 PM
No reason for them to take Pay
1) Cost them money to implement it, and at this moment there is little demand. Plus it may fail. Why not wait and see?

2) What if Apple want to become the bank (issue credit cards)? Apple is going to squeze the last juice out of them.
gvandunk
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50%
gvandunk,
User Rank: Strategist
10/28/2014 | 12:31:55 PM
Security and Cost
First,the CVS/Rite Aid choice does not only effect ApplePay it also effects any NFC payment method.  So, if you are using a new touchless chip card it does not work, if you are using Google Wallet it does not work etc.  This is a poor business decision since consumers want better security and the chip cards at least attempt that.  Banks and networks are already rolling this "new" to the USA technology out with full implementation next year. 

Second is cost.  From what I could find MC/Visa/AMEX and the banks negotiated a .015 cents per transaction that goes to Apple. This is going to have no tangible impact on Apple's bottom line and probably just covers the development and maintenance costs for ApplePay. This creates a seamless client experience on their platform, further keeping people in their ecosystem.  This is what Apple is going for, an easy and convienent experience. The security is as good or better than chip and pin that is now just being rolled out in the USA.

The larger issue with CurrentC, forget the loyalty stuff and tracking, is the fact that you have to put in either a debit card or your banking account information, no credit cards allowed.  Most knowlegable consumers use credit cards instead of any type of direct debit to protect themselves from fraud and provide them with leverage when there is a dispute with the retailer.  

CurrentC is not consumer friendly or easy to use so it will not be adopted.  No one is going to start using something new, unless forced to, that is harder to use and gives less utility than what they are already using.  It is great for the retailer but bad for consumers.

Remember retailer loyalty programs are not for the consumer but are for the benefit of the retailer.  The retailer would not have the program if it were not benificial to them from a data, marketing and monatary perspective.
TooTallTech
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0%
TooTallTech,
User Rank: Apprentice
10/28/2014 | 11:42:02 AM
Re: Is there an Apple Pay app for Android/Windows Phone/Samsung, etc.?
NFC technology isn't exclusive to Apple iPhone 6.  Some credit cards have chips embedded into them (Amex advertised this greatly for a bit a few years ago with their "blue chip" cards; many other cards from all three major issuers have chips in them as well) where they can be tapped against NFC terminals to process payments.  Some non-Apple phones have NFC technology as well to be used with other mobile wallet apps such as Google Wallet.


Rite Aid and CVS have had NFC contactless payment terminals in their stores for a long time prior to Apple Pay.  What Rite Aid and CVS did wasn't simply disabling Apple Pay, they disabled NFC altogether because they are afraid of Apple Pay becoming a de facto way of paying at their stores and derailing their plans for the MCX CurrentC product that they're backing along with Walmart and others.

So in short, they have purposely sabotaged working functionality in their credit card processing terminals at checkout to make it less convenient for consumers using Apple Pay or ANY other NFC-enabled technology, including embedded chip cards, all because they want to back a technology that's not even released yet - it's in testing with general availability not until "sometime" in 2015.

Whether you support Apple or not is irrelevant - consumers should get to choose what works best for them.  If CVS and Rite Aid never had the technology to begin with, then I'd say it's completely within their rights not to go through the time and expense to upgrade their systems to support Apple.  However, they have the technology and it was working - they just purposely disabled it for political reasons.  Whether you're an Apple fan or not, this is a blatant move to stiffle competition through inconveniencing the consumer.  If you are an Apple fan and you discovered what was working is now not working simply because of a corporate decision, you're likely to get pissed and shop elsewhere instead.  This is a very short-sighted move by CVS and Rite-Aid.
GAProgrammer
67%
33%
GAProgrammer,
User Rank: Ninja
10/28/2014 | 10:34:18 AM
Unbelievable bias...
Big shock - another article from IW extolling the virtues of all things Apple while slamming anything NOT Apple..

I love how these "tech journalists" jumped right on board and said Apple Pay was going to be revolutionary, while knowing little to no details about HOW it works, then turn right around and trounce CurrenC, which isn't even implemented yet. Apple doesn't need an advertising wing, the tech press is doing that job just fine, thank you, and for FREE!

Journalists don't even TRY to be objective anymore. I mean, even the teaser line is negative about the decision ..."short-sighted", really? It's a shame too, because there is a lot of interesting information in the article that many will just not read because of the blatant bias of the article.

Could you guys at least TRY to be objective, at least a little bit? By the way, objective doesn't mean you throw in 1 counterpoint to your 35 points.

These two companies are already in heavy competition and margins are low, so I don't blame them one bit for not wanting to lose 1%. Rite-Aid alone had retail sales of 25.4 billion, so 1% of that is 254  million. Sounds like a sound business move to me!
rjones2818
100%
0%
rjones2818,
User Rank: Strategist
10/28/2014 | 10:19:04 AM
Is there an Apple Pay app for Android/Windows Phone/Samsung, etc.?
If not, how does Apple Pay help those who don't have an Iphone?  Clearly, Apple Pay wouldn't help the majority of smartphone users in that case.  Perhaps the merchants who are signed-up for CurrenC want to get their system established before using Apple Pay.

 
mak63
100%
0%
mak63,
User Rank: Ninja
10/27/2014 | 11:12:55 PM
pay any way
"Understandably, MasterCard says CVS and Rite Aid have made a mistake. We think consumers should have the ability to pay any way they want,"

If that were true, a lot of business would be accepting bitcoin by now, right?
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