Apple Pay caught in the crossfire as CVS, Rite Aid block the app
CVS (CVS) and Rite Aid (RAD) over the weekend blocked use of Apple Pay and some other mobile wallet apps, as the long-raging battle between retailers and the credit card industry hit iPhone users for the first time.
Neither pharmacy chain has yet offered an explanation for why they turned off wireless checkout terminals in their stores. But both are members of a retailer group called the Merchant Customer Exchange, or MCX, that is trying to woo customers away from using credit cards with a competing mobile wallet app that cuts the cards out but won’t be available until next year.
By contrast, Apple (AAPL) teamed up with Visa (V), Mastercard (MA) and American Express (AXP), along with major card-issuing banks, for its new mobile payment app. Apple Pay allows customers to make credit card payments more securely and more quickly than by swiping a credit card. Stores, however, still must pay all the same fees they pay on ordinary credit card transactions.
Apple signed up several dozen stores as Apple Pay partners, including Whole Foods Markets (WFM), McDonald's (MCD) and Walgreen (WAG). But because Apple’s mobile wallet app is based on industry-standard technologies created by Mastercard, it also works at thousands of other stores, like CVS and Rite Aid, that had previously installed wireless checkout terminals.
For the first few days, Apple Pay users could use the app for purchases at the two major pharmacy chains. Over the weekend, the stores turned off the wireless terminals, blocking users of Apple Pay and other apps such as Google Wallet.
Rite Aid didn't offer much of an explanation in a brief statement on Monday. "Given that we are still in the process of evaluating our mobile payment options, Rite Aid does not currently accept Apple Pay," the company said. "We are continually evaluating various forms of mobile payment technologies, and are committed to offering convenient, reliable and secure payment methods that meet the needs of our customers."
CVS gave a similar response: "At this time, CVS/pharmacy cannot accept Apple Pay or other mobile payments that use NFC technology. We are in the process of evaluating mobile payment options for our customers."
Apple declined to comment.
Apple Pay vs. MCX
Retailers were likely afraid that Apple Pay was gathering enough positive publicity and momentum to hurt next year’s rollout of the MCX app, dubbed CurrentC. However, by blocking the app, they threaten to ignite a cutomer backlash while generating additional free publicity about Apple’s solution.
Members of MCX, including Walmart Stores (WMT) and Target (TGT), control about $1 trillion of U.S. retail commerce a year. They and other retailers have been battling credit card companies over fees and other terms for decades, filing multiple lawsuits, lobbying for new laws and creating competing payment offerings.
Retailers plan to require customers to link a bank account, debit card or store gift card to their CurrentC app -- as opposed to a credit card. Stores pay much lower fees on those types of transactions, only 12 cents for debit card use, for example. The app would not be compatible with typical credit cards. Retailers pay 2% and up on those purchases.
The contrast between the two apps highlights each side's differing approach. Apple's much slicker app is easier and quicker to use but available on only a small fraction of all smartphones. CurrentC is clunky and slower but will work on almost any smartphone in the U.S. While Apple’s solution works wirelessly using a Near Field Communication, or NFC, chip in the new line of iPhones, the CurrentC app relies on bar codes that can be generated by almost any smartphone, including those running Google’s (GOOGL) Android software.
Apple's appeal to stores lies in its ability to convince its wealthy customers to frequent and spend more in outlets that offer Apple Pay. But stores using CurrentC can promote the solution to a much broader audience and benefit from lower transaction fees.
From a consumer point of view, Apple Pay is quick and secure and may grant an air of exclusivity or coolness. CurrentC also offers better security along with loyalty rewards, discounts and coupons.
Some complaining Apple fans have pointed to the retailers’ plans to collect more customer data, as well. Apple has said it isn’t collecting any data via Apple Pay while stores will track spending habits in CurrentC.
But Apple Pay relies on credit cards and the card-issuing banks already collect and sell mountains of customer spending data. They’ve even begun selling sensitive data to health insurers and hospitals.
