Wait—isn't losing control of CRM data the biggest reason chains aren't wild about digital wallets in the first place? Wasn't everyone worried that Google might somehow share transaction data with a chain's competitors? Apparently, that fear was well-founded—just misplaced. It turns out the people who will do anything to grab CRM data are the card brands and issuers.
MasterCard's new charge, which gets the train-wreck of a name "Staged Digital Wallet Operator Annual Network Access Fee" (SDWOANAF), made its first public appearance in February, when PayPal parent eBay (NASDAQ:EBAY) described it in an SEC filing. Details are sketchy, but SDWOANAF apparently applies only to credit transactions (not debit) and only to digital wallets that use a cloud-style arrangement where the wallet operator stores the card number on its systems, instead of storing the card number directly on a smartphone. So PayPal, Google and possibly Apple (NASDAQ:AAPL) get hit with SDWOANAF, but Isis doesn't.
That "staged" arrangement means MasterCard and its issuers will only get data on exactly what customers bought secondhand, through the wallet operator, instead of directly from the POS. MasterCard is willing to strong-arm the wallet operators with a fee (it's tiered based on last year's transaction volume, but one source says it's 35 basis points) in an attempt to get them to cough up everything MasterCard used to receive from a regular POS transaction.
If you've wondered how much other people want your CRM data from transactions, wonder no more.
Let's be clear: For the moment, most of the chatter about this situation has been focused on PayPal, which is the only third-party wallet with a really big footprint online or in-store. It's also the one wallet operator that MasterCard North American President Chris McWilton called out at a financial conference two weeks ago.
"PayPal rides for free on the back of other business models," McWilton told Credit Suisse Global Services Conference attendees. "So they ride on the back of the networks for a card-funded transaction. They ride on the back of ACH, which is owned by the banks. And I think they've got to be cautious that they don't get too big and start making people wake up and say, 'Wait a minute. I'm actually losing business here because of your moving into the physical space.'" (That's from a Nomura Equity research note, quoted by NFC World.)Only about one-third of PayPal's accounts get paid with credit cards, and Wall Street analysts figure PayPal will swallow the charge. PayPal's card network, Discover (NYSE:DFS), says it won't mimic MasterCard's new charge. Visa (NYSE:V) and American Express (NYSE:AXP) are noncommittal. And exactly how Amazon (NASDAQ:AMZN) and Apple (which uses a PayPal-like "staged" arrangement for purchases from its own stores through iTunes accounts) will deal with this remains unknown.
And then there's MCX. No, it doesn't exist yet. But it's being designed specifically for the twin purposes of cutting interchange costs and letting chains keep control of CRM data. That makes it the blood-enemy of card brands.
If MasterCard's SDWOANAF is supposed to nudge third-party wallets toward more transaction-data sharing, that's something wallet operators might be able to work with because they have cards in the loop anyway. It's really just a technical challenge. Apparently "asking nicely" isn't in the Card Brand Official Playbook.
There's an irony here: Google Wallet, which signed up MasterCard as its first card brand, tried storing card numbers on phones, the way MasterCard and the banks prefer. But banks were so slow to provision their cards to the phones—we're talking weeks here—that Google finally gave up and went cloud-based. Now MasterCard is slapping Google with a fee for working around the issuers' foot-dragging.)
But MCX is the anti-card. It's only going to be really worthwhile for chains if customers pay directly from bank accounts, either with debit or ACH. MCX wants to cut out credit-card transactions and their effectively unlimited interchange.
Until now, the biggest reason for large chains to have misgivings about MCX was Walmart (NYSE:WMT)—every other chain's biggest competitor and MCX's biggest backer. It's still true that MCX is first and foremost about Walmart. Everyone else is along for the not entirely comfortable ride. And of all the big chains that have paid to sign up with MCX, most probably figured it would take something very big to make them feel a lot better about it.
MasterCard may be that very big thing. For the first time, a card brand is making it crystal clear that it really cares about something besides interchange.
Maybe that shouldn't be so surprising after all. MasterCard's issuers have their own loyalty programs. They compete for "ownership" of customers. The more CRM data they can collect, the more they can work those customers in profitable ways. And the biggest source issuing banks have for CRM data is what comes by way of the retailer's POS.
It's too early to say that CRM data is the new interchange—but we're now a lot closer.