Why MCX Should Focus on CNP, not POS
Just over a year ago, a group of merchants including Wal-Mart, Target, Best Buy and 7-Eleven announced their intention to develop the Merchant Customer Exchange (MCX). According to these merchants, MCX will revolutionize the way consumers pay for goods and services by integrating their smart mobile devices with the merchant’s payment acceptance system, enabling a vastly improved customer experience before, during and after the point-of-sale (POS) transaction. Perhaps more importantly for retailers, MCX promised to lower the discount fees they pay for credit- and debit-card acceptance.
The potential benefits for both merchants and consumers, as well as the impressive list of approximately 50 major merchants now supporting the solution, lends credibility to the idea that MCX may be able to make significant changes in the payments ecosystem. Given the disappointing responses to the pilots of proximity-based mobile payment solutions from both Google and Isis over the past two years, the promise of a solution with the potential to be viable upon introduction is more than sufficient to justify increasing enthusiasm about the initiative.
The biggest cause for optimism over MCX is its merchant relationships. Generally, when a new payments platform is introduced, merchants refuse to buy in before consumers, and consumers refuse to buy in before merchants, delaying and often destroying the entire platform. But, because MCX is backed by so many large retailers, the solution has the merchant side of that issue accounted for. The merchants helping to develop MCX are committed to supporting the solution, meaning MCX can focus on increasing consumer adoption, which will be easier now that consumers will be able to pay with MCX at a number of major merchant locations.
That said, many of the problems that stalled the Google and Isis solutions still exist, and likely will affect MCX. Particularly significant, merchants are generally not yet equipped with the hardware necessary to accept mobile payments at the POS. These merchants are willing to support the technology, but don’t have the (relatively expensive) equipment necessary to do so. Also, very few consumers are actively seeking an alternative to card-based payments at the POS. This means that even though the technology is useful to consumers, it will take a significant amount of work to convince them to adopt it.
At the POS, these problems are significant enough to potentially derail the program. However, both of these problems are easily overcome if MCX decides to initially focus on card-not-present (CNP) e-commerce solutions. In addition to avoiding these problems, focusing on CNP transactions would offer a number of unique opportunities for MCX and the merchants that implement its solution.
First, compared with the upgrades necessary to add a new payments technology to a POS system, those required to incorporate a new solution into an online payments gateway are minimal. While MCX has yet to disclose the specific credential transmission technology they intend to utilize for in-store transactions (they’ve only stated that they don’t intend to wait around for NFC to become mainstream, and that they will use whatever solution is most useful to both merchants and consumers), most would require hardware and software additions to POS systems. NFC systems obviously require a contactless receiver, and a QR code system similar to the one popularized by Starbucks would require most merchants to upgrade their scanners. Even those solutions that don’t require hardware upgrades (such as Paydiant’s QR code-based solution), will require software upgrades and employees trained to use the solution.
Compare this to e-commerce payments. Online payments gateways have no payment-acceptance-specific hardware, so they require no hardware upgrades. E-commerce transactions don’t have employees managing the checkout process, so there is obviously no need for employee training. In order to implement MCX acceptance as a CNP solution, merchants would only have to adapt their software, a process that would take no longer than adding PayPal as an accepted form of payment (which many of the merchants backing MCX have already done).
The second issue is that consumers are not actively seeking improvements to the in-store payment systems–plastic cards are convenient, simple, and relatively secure. The same cannot be said about the system for e-commerce payments made via mobile devices. Multiple studies have found mobile e-commerce shopping-cart abandonment to be approximately four times that of all e-commerce. Consumers are unsatisfied with the current methods for completing online orders on their mobile devices, providing an opportunity for MCX to offer an improved solution.
So, why is this advice specifically valuable for MCX, as opposed to all mobile payment solution providers? First, while the retailers backing MCX all have storefronts that accept POS payments, many of them are among the largest e-commerce retailers in the world. These merchants have the ability to select MCX as a common “one-touch payment” solution accepted on dozens of the most popular e-commerce websites. Not only would this please consumers looking for an improvement in online mobile payments, it would add to adoption rates of MCX, increasing the number of potential consumers who could use the solution at the POS.
Also, unlike most mobile payment solutions, one of the stated goals of MCX is to decrease the costs associated with payment acceptance. While discount rates are burdensome for POS transactions, they are significantly more so for CNP payments. If MCX can provide relief for brick-and-mortar retailers, they have even more opportunity to do so for online merchants.
Compared to in-store payments, e-commerce transactions are easy to dismiss as minor, and the same can be side about the comparison of mobile e-commerce to total e-commerce.That said, given the inherent synergies between MCX and mobile CNP payments, e-commerce should be seriously considered as a first step. One of the biggest mistakes made by MCX’s competitors was attempting to implement in-store mobile payments without sufficient adoption by both merchants and consumers. MCX already has merchant support. If CNP transactions can attract consumers to the platform, MCX may become the first mobile payments solution to actually reach its potential.
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