MCX Embracing QR Codes, The Cloud And Unparalleled Vagueness

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Merchant Customer Exchange, the retail group trying to offer its own mobile wallet, plans on using QR codes as the heart of its cloud-based payment app, the group announced Monday (Jan. 14). But beyond the QR code detail and the names of a few new retail members—including Meijer and Wawa—little was discussed during an hour-long panel that meaningfully addressed how the group plans on making a difference, beyond the general platitudes MCX has stressed since its March 2012 launch.

What was different this time, though, is that members were more candid in explaining why they have the goals they do, even if they were not especially forthcoming in how they plan on achieving those goals.

The group said its effort will be cloud-based, leveraging barcodes (which a spokesman later clarified meant QR codes), but MCX didn't say how purchases would be made. Will the QR codes identify products, a specific POS station or something else? Will it be closer to what Burger King trialed on QR or how Starbucks uses barcodes to replicate its stored-value card? And there were no new hints about when this mobile wallet may materialize at all.

Dodd Roberts, whose title at MCX is simply "executive," ended the panel by telling the audience that the group had solved the mobile battery dying problem, but somehow neglected to say what that solution was. Is it somewhat more complex than charging stations near every POS or at least several in each store?

Walmart's Jamie Henry (the chain's senior payment director) said the group would be using tokenization to protect the payment data, but he didn't say how such tokens would function. "We're still passing around 16-digit PANs in the clear," he said. "This will take them out of the system."

MCX also clarified its intent that data from one chain will not be shared with another chain. Jay Culotta, the treasurer at regional convenience chain Wawa, said many of the mobile vendors say they are not—today—planning on sharing data, but they refuse to say what will happen down the road.

"It's not a forever situation," Culotta said, adding that the temptations for leveraging such data will likely be overwhelming. "It's unclear what their business case would be without monetizing that data."

A Lowe's executive on the panel—VP, Operational Controller John Manna—agreed and painted a scenario where a mobile vendor knew that a Lowe's customer made regular purchases at Lowe's and then walked right by an Ace Hardware store. And if an Ace Hardware corporate manager is then talking with that vendor, will the very substantial dollars that Ace would likely pay for that list of customers be set aside? Manna indicated that he would rather not find out.

Walmart's Henry said retailers as a group made a huge error in the early days of E-Commerce, when they permitted the in-store payment rules—rules that were written by people at a time when E-Commerce was unimaginable—to be applied without alteration to E-Commerce purchases. "We slapped the existing system onto the new world," Henry said, adding that such a mistake must not be repeated with mobile payments.Lowe's Manna offered as an example a $3 purchase and a $300 purchase. "Why does the $300 purchase cost so much more?" he asked. When payment brands argue that it's because the risk is so much higher, Manna says he responds, "then let's reduce the risk" instead of overcharging everyone.

Some retailers have embraced various mobile trials and said they'll accept them all, just as they accept checks, cash, a half-dozen payment cards, giftcards, gift certificates, Traveler's Checks and various other forms of payment today.

Walmart's Henry said that take-all-comers strategy is a bad one. He painted a picture of what Walmart stores on Black Friday would look like with such an approach. "One customer's face pops up on the screen. The next one keys in their phone number. The next one tries to tap their phone," he said, suggesting it would cause associate and customer confusion, on top of sharply slowing down checkouts.

The biggest point of the group from its inception has been an attempt to not only sharply lower interchange fees but have them be charged in a manner that is much more fair to retailers. But when an audience member asked the group if MCX was open to becoming a processor, Roberts said the group would not do that.

This raises a key question. If the idea of processing payments directly is being taken off the table, what true negotiating power does MCX have with Visa and the other card brands?

Clearly, the new group—if these major chains stick together—would have huge volume purchasing power. But Walmart today already has pretty massive volume clout and it hasn't been able to extract the types of payment interchange concessions it wants.

As long as Visa knows these chains would never want to halt accepting Visa, MasterCard, American Express and other brands, they have to play by the brands' rules. Only if the brands honestly believe the business—and, with it, the brands' executives' livelihoods—might go away will they negotiate in good faith. Why that option is being taken off the table so publicly and so early is baffling.