This week we’ve seen what looks a lot like the death of Merchant Consumer Exchange (MCX). It’s arguable that it never really lived – in the four years since the announcement of a dozen plucky retailers banding together to take on the evil card networks, MCX sat on the back burner of payment innovation with the gas turned to simmer. So what went wrong?
From the outset, the band of MCX brothers were not a happy family. I can clearly remember the panel discussion at the first Money2020 in 2012 where Mike Cook, WalMart’s representative for MCX made this statement…
“Think about how easy it will be to disintermediate financial institutions. I do not think they even see this coming…”
While this brought audible gasps from an audience that skewed old, white and very much retail banker, what was also noticeable was the obvious discomfort of fellow MCX representatives sat on stage with him. A clear public indicator of internal conflicting agendas and a lack of coherent vision. There were two MCX’s – one a happy collective of retailers that were looking to launch their own payment system with some nice networking benefits like loyalty and rewards and the other a rabid badger that was going to bite the payments status quo in the ass. If Mike Cook could have kicked the Money2020 amps over and stagedived into a terrified crowd of suits, I think he would have.
There’s an interesting ‘tortoise and hare’ observation to make about the current state of payments. Core payment systems change very, very slowly – which is why we still have magnetic stripe card acceptance, checks and cash. They are trusted, they are ubiquitous and most of all, they work. But, on the periphery, the connective tissue between technologies and other technologies is in a rapid state of flux – QR, NFC, MST, BLE… all are contenders in the consumer/merchant interface of the present (and future). However, Metcalfe’s Law is in play – that the value of a network is proportional to the square of the number of connected users of the system. In essence, the winning technology will be the one that scales and is adopted the fastest.
Following the audacious gatecrashing of the incumbent payments party, MCX should have been king of the world. Instead, what occurred was an extended period of retrenchment while MCX worked out the plans for world domination. In 2013, QR codes were everywhere – on buses, on cereal packets, on T shirts. Unattractive as they are (described by a friend as digital vomit), they were certainly prolific, far more than that NFC thing that would never catch on. “Not For Commerce”, PayPal said. People nodded. Besides, Starbucks was doing just fine with barcodes.
Two things changed the m-payments dynamic from QR to NFC – one seismic and one organic…
The seismic event was the launch of Apple Pay in October 2014. Until this date, NFC was restricted to non iOS handsets and subject to interoperability squabbles between Google Wallet and the unfortunately named MNO consortium of Isis (later Softcard). Apple throwing their hat into the ring tipped the balance in favor of NFC as the preferred consumer / merchant interface of the future, with issuing banks and retailers salivating over their dusty brands reaping the halo effect of association with the consumer electronics paragon of cool. MCX, by contrast, now had all the cache of a bunch of retail coupon flyers in a Sunday newspaper.
The organic event is still going on – it’s the glacial transition of the US POS infrastructure to EMV cards. Several years ago, the major POS vendors went for a Henry T Ford model of manufacturing terminals – make one terminal for all markets which will fit both present and future technologies – EMV, NFC, whatever. These Swiss Army Knife POS devices from the likes of Ingenico and VeriFone are slowly permeating US retailers as they upgrade to accept EMV chip cards. And upgrading to EMV means that by proxy, NFC enablement comes along for the ride.
With Apple Pay taking the wind out of their sails and the creeping inevitability of an NFC future, MCX resorted to some drastic and rather myopic measures to prevent defections from consortium members to Apple, Android or Anyone. In September 2014, news broke that MCX members were not to accept Apple Pay in their stores under a punitive exclusivity agreement. Cracks in MCX member allegiance became fissures by 2015, with key members such as Best Buy and Rite Aid rejecting exclusivity to a conceptual mobile payment network in favor of publicly live and payment accepting ones.
MCX limped on with a public beta test in Columbus, OH in September 2015, but by this time the writing was pretty much on the wall for their impending demise. Fast forward to this week and their CEO’s Monty Pythonesque statement that they’re not dead yet, despite many signs to the contrary.
So, lessons to learn here?…
- Payments are very, very hard. I’m quoting my friend James Wester here and thoroughly agree. Yes they are, but there are a lot harder when compounded by the next points.
- Too Many Cooks (or just one too many)? MCX, in a more designed form, could have potentially worked. However, the yardsale of retailers under the umbrella overlapped competitively which undoubtedly caused friction. In particular, WalMart as a retailer that competes in every segment of the rest of the members was notably feisty. It’s no great surprise that they have recently launched their own mobile payment network.
- What do you want to be when you grow up? From the outset, MCX seemed to have little clarity as to what they wanted to achieve. Lower interchange? Provide inter-retailer digital loyalty? Invade a sovereign nation? I’m not saying Apple Pay, Android Pay, etc., have clear visions of the end game either. BUT – they have at least the advantage of unilateral decision making and therefore adaptability to changing market forces and technologies.
- Don’t procrastinate. When MCX was announced in 2012, it was seen as being at the vanguard of payments innovation. Since then we’ve had blockchain, Uber, selfie pay, commercial drones, Alexa and driverless cars. MCX should have committed while they had the momentum and could have iteratively innovated to stay abreast of technological and cultural trends. To be standing still is effectively to be moving backwards.