You might not have heard of CurrentC yet, but the payment system will likely be a household name by next year. Backed by the titans of retail, including Wal-Mart (WMT 1.79%), Target, and Best Buy, the technology seeks to cut out the credit card middleman, and therefore save retailers 2%-3% or more per transaction, by establishing a mobile payment platform connected to customers' checking accounts.
What's this all about?
CurrentC is a platform created by the Merchant Customer Exchange, or MCX, a consortium of major retailers in retail segments including big box, convenience, pharmacy, grocery, and fuel. Combined, the partners have over 110,000 locations nationwide in which CurrentC will be accepted starting in 2015, and process over $1 trillion in payments annually. According to MCX's press release, CurrentC will help consumers save money with coupons and offers, provide rewards from loyalty programs, and give them a simpler, safer way to pay.
CurrentC is a free downloadable app available through Apple's (AAPL 1.27%) App Store and Google Play that can be scanned using QR codes at point-of-sale systems. While the system could offer consumers an easy form of payment, it seems primarily intended to help retailers avoid costly swipe fees (that $1 trillion in annual payments translates into $20 to $30 billion in fees, no small sum). Even if the app is not widely adopted, it could at least be used to negotiate lower fees with credit card companies. This has long been a dream of Wal-Mart, where former CEO Lee Scott supposedly once said, "I don't know that MCX will succeed, and I don't care. As long as Visa (NYSE: V) suffers."
What about Apple Pay?
CurrentC jumped into the headlines weeks ago when Rite Aid and CVS said they would block Apple Pay, the tech giant's own mobile payment system, due to an exclusivity agreement with CurrentC. The news prompted an uproar on the Internet against the drugstore chains and MCX's payment platform, but the reaction seems overblown; MCX CEO Dekkers Davidson has noted that the exclusivity agreement is set to expire within "months, not years." The backlash seemed to come because CVS deliberately shut down its near-field communication system that had accepted Apple Pay in order to abide by the exclusivity agreement. Midwestern grocery chain Meijer, notably, has continued to accept Apple Pay despite being a member of MCX, and said it has no plans to disable its NFC system. It's unclear if Meijer will face any fines once CurrentC rolls out.
Is this a credit card killer?
With the bad press surrounding Rite Aid and CVS and a mild data breach that revealed customers' email addresses, CurrentC has not gotten off to a good start. Indeed, plenty of Apple followers are cheering for its quick death, but that is unlikely. After all, if choice of payment was that important to shoppers, then there wouldn't be any cash-only businesses in existence.
But CurrentC does pose a serious threat to Visa, American Express (AXP +1.54%), and MasterCard (M 0.45%), as mobile payments seem poised to upend credit cards one way or another. Apple Pay, of course, works with credit cards, but there would be no need for it if swiping your plastic was more convenient.
This is the beauty of Apple Pay -- it is easier to use than credit cards, requiring the user to simply take out their phone and put their finger on the Touch ID sensor. However, the technology will need widespread availability in order to work, and right now that is CurrentC's advantage.
The average American likely spends a significant amount, if not a majority, of his or her budget at MCX partners, and those companies have a huge incentive to get shoppers to use it. In other words, if your neighborhood supermarket or gas station is an MCX member, there will likely be sufficient loyalty and discount incentives to entice you to come aboard. The technology is considered clunky by some, but that could easily change. The need for credit cards, however, will continue to fade as retailers now have disruptive technology.
Time to cut up your cards?
It's too soon to assess the CurrentC's potential, as the payment system won't be available until next year, but the opportunity is huge. With operating margins near 50%, Visa and the other lenders can afford to lower fees if the merchants feel they have leverage to exploit in negotiations. Or we could even see retailers pass on the credit card fees to customers if they choose not to use CurrentC.
Visa's reported revenue doesn't come directly from merchants, but its service and data processing revenues, which are generated from individual payments and transactions, make up the vast majority of the company's overall revenue. In other words, if CurrentC catches on, revenue for Visa and the other credit card providers could take a serious hit.
