When JPMorgan Chase on Monday (Oct. 26) promised new mobile capabilities for its online Chase Pay program next summer, it chose to take a decidedly retailer-oriented approach. With the lures of lower interchange fees plus all of the fraud cost protections of the EMV liability shift without having to accept EMV, Chase has given retailers concrete reasons to push Chase Pay over other payment methods.
The Chase announcement named MCX (and specifically members Walmart, Target, Best Buy and Shell) as premier partner. Interestingly, the interchange reduction effort that caused MCX to form years ago but had been all but abandoned by the group recently is the centerpiece of Chase’s 2016 plans. What MCX couldn’t get on their own was handed to them by Chase.
Chase’s interchange approach for any transactions where the Chase Pay mobile app is used includes “$0 Network Fees, $0 Merchant Processing Fees and $0 Merchant Fraud Liability” along with “fixed pricing” that Chase said would be lower than existing interchange rates. Like all interchange fees, the amounts and the discounts will vary from retailer to retailer, based on negotiated deals.
“To generate merchant interest,” Chase will be “offering a fixed price for the duration of the contract. One price for credit and one price for debit,” said Jennifer Roberts, Chase’s president of strategic alliances and loyalty solutions. “We want to have predictability.” In general, though, how much lower are the fees? “It’s safe to say that the merchants are very happy with the deals we have arranged with them. They will give preference to the Chase Pay form of payment.”
That’s the point and it’s the key strategic difference between Chase’s new approach with MCX and Apple’s approach to Apple Pay. Apple Pay is pushing a shopper-oriented approach, where shoppers are being encouraged to use Apple Pay and where the movement to Apple Pay is fueled by consumers pressuring their retailers to accept it. Apple Pay is also focused on the experience and even Chase concedes that Apple Pay’s NFC transactions are generally going to be faster and easier than Chase Pay, although not by much.
But to deliver that experience and speed boost, Apple Pay requires merchants to have NFC readers. That is preventing the overwhelming majority of merchants from accepting Apple Pay, even if they wanted to.
Step in Chase. Chase Pay is slated to use quite a few different payment technologies—including QR codes, beacons, GPS geolocation and taking a picture of a restaurant check—but not NFC. That allows Chase’s payment method to work at almost any merchant. By giving the merchants a financial incentive to push Chase Pay over other forms of payment, Chase is reversing the Apple model. Instead of getting consumers to encourage merchants, Chase is getting merchants to influence its consumers.
Roberts argued that retailers can use in-store signage and might position Chase Pay as the first form of payment available in that retailer’s own mobile app. That said, Chase’s app is limited to Chase customers, whereas Apple Pay accepts cards from a wide range of financial institutions. And even though Chase touts “its 94 million credit, debit and pre-paid card accounts,” many of those customers won’t use Chase Pay and there are far more consumers who do not have a Chase card than those who do. Therefore, Chase Pay is, at best, a supplemental payment option. MCX wants it to supplement its own CurrentC mobile wallet, of course.
In another key approach difference from Apple Pay—and, for that matter, from every other major mobile payment method attempted—is that Chase isn’t going with any one payment technology method. On the down side, using so many different approaches could slow down acceptance as it is forcing shoppers to get comfortable with multiple mobile payment approaches. This learned behavior will simply take longer.
But Chase is opting for a vertical approach, on the rationale that the best payment method—for both the retailer and the consumer—is going to be different for someone in a drive-through window versus paying at a gas station pump versus paying a dinner check at a sit-down restaurant. “We opted for one solution per merchant vertical,” Roberts said. “We have one solution for fuel that will work across all different” gas stations.
For in-store retail transactions, the mobile device scanning—or displaying—a QR code will be the route. Beacons will be favored for drive-through and for quick-service restaurants (QSRs) in general. GPS authentication will be an option at gas stations, Roberts said. “The fuel re-terminilizations for EMV are very costly at the pump. We’ll be using GPS with the customer having to enter a code into the pump.” At sit-down restaurants, where a commonly-cited pain point is waiting at the table for a server to process the check, allowing the consumer to take a picture of the bill and pay with a mobile device could work well. (Note: When Chase figures out a way to get the server to bring the check right away, we’ll be happier.)
EMV plays into this Chase move in two ways. Despite the passing of the October 1 liability shift, most retailers do not yet accept EMV. The idea had been that most of the upgraded EMV-friendly readers would also accept NFC. Hence, the slowdown of EMV acceptance has also slowed down the number of NFC-accepting merchants. That makes Chase’s non-NFC approach even more effective.
But the liability shift protection has been the key carrot used to incent merchants to upgrade to EMV. By offering those fraud protections for retailers not accepting EMV—as long as Chase Pay is used—Chase is potentially further slowing down adoption. Although not a strategic goal, Chase seems willing to let this happen.
“We started with the merchant side of the 2-sided market. Reterminalizing a fuel retailer is very very expensive,” said Chase spokesperson Trish Wexler. “Some merchants are seeing this as a way to leapfrog reterminalizing with EMV. Where do you start balancing out the economics?”
Chase is also pushing integrated mobile loyalty programs and full tokenization. Apple Pay already offers full payment card tokenization and has talked—albeit vaguely—about offering integrated mobile loyalty.
Payments consultant Deana Rich said she saw the liability shift efforts from Chase as having the most potential. “Chase is guaranteeing the merchant against consumer fraud, which means the EMV liability shift reverts back to the ‘way it used to be’ for merchants,” she said. “By next summer, we will better understand the pain borne by the merchant. If that liability switch pain is big, that will greatly affect the appeal of this product.”