When it comes to credit cards, there are three parties involved in every transaction: the credit card issuers, the cardholders and the merchants. The credit card issuers have historically been very profitable, and credit cards remain very popular with consumers , otherwise they would choose a different form of payment. However, merchants have long had issues against the credit card industry. Merchants believe that the fees that they are charged to accept credit cards is unfair and uncompetitive, and they are constantly looking for ways to address this issue.
How Merchants Tried to Reign in Costs with a New Mobile Payment System
One way that merchants have tried to reduce their costs is by lobbying the government to regulate merchant fees. And while their efforts have been successful in reducing debit card fees, they have been unable to have similar legislation enacted to reduce credit card fees.
But as mobile payment platforms such as Apple Pay have emerged, some merchants hoped to find an opportunity to make an end-run around credit card processing fees by offering their own proprietary mobile payment scheme, minus the merchant fees. In 2012, a coalition of merchants including WalMart, Lowes, CVS and others founded a company called Merchants Customer Exchange, or MCX, to create its own mobile payment system, which came to be called CurrentC.
The idea behind CurrentC was that customers would link their checking and savings account to a mobile app, which would display a QR code (square bar code) that could be scanned at participating retailers. The advantage to consumers is that it would be platform independent, allowing consumers to use the app on any smartphone without the need to use newer phones, but instead use wireless radio technology to communicate with merchant's payment system. And for retailers, the goal was to take credit cards and their expensive merchant fees out of the loop, and gain a direct link to the cash in their customers checking and savings accounts.
The Failure of CurrentC
In June of 2016, after over four years of development and testing, MCX announced the end of the CurrentC beta test that was underway in Columbus Ohio, and the layoff of the development team. What many industry observers and CurrentC customers realized was that the advantage that the system offered retailers came directly at the expense of customers. Whereas mobile payment systems like Apple Pay, Samsung Pay and others were merely a way of using existing credit card accounts to make mobile purchases, CurrentC was a system that inherently deprived consumers all the advantages of credit card use. These advantages include cardholder benefits such as purchase protection, rewards for spending, and the robust safeguards against fraud that credit cards offer. And of course, credit card users who choose to carry a balance can use their cards as a means of finance, unlike a purchase linked to a checking or savings account. In fact, even credit card users who pay their balance in full each month enjoy interest free grace periods of up to 55 days, while their checking account balances are instantly debited by transactions from CurrentC.
A credit card account is not just a piece of plastic, it's a financial instrument that can come with unique rewards, benefits and legal protections not found in other methods of payment. The forces behind CurrentC hoped that consumers would forget this fact and focus on the ability to use their smartphones to complete transactions rather than a plastic card. However, consumers understand the benefits offered by their credit cards, they are being acutely aware of how their purchases affect their bank accounts, and they have no stake in the merchant's quest to reduce their own transaction costs. As merchants, card issuers and consumers watch the future of payments evolve, everyone would be wise to remember this lesson.