November 11, 2015
At the Money20/20 conference held recently in Las Vegas, America’s largest bank by assets JPMorgan Chase & Co. announced the launch of its own digital wallet called Chase Pay. Described as a closed loop network, Chase Pay will allow Chase’s 94 million credit, debit and pre-paid card customers to make in-store, in-app and online purchases, beginning 2016. To power its mobile payments, Chase has partnered with the Merchant Customer Exchange (MCX), which is a group of retail and oil giants Walmart, Target, Best Buy and Shell. Chase Pay will now be entering the race with Apple Pay, Android Pay and Samsung Pay and stated to provide a better payments experience to millions of customers, processing 34 million transactions each day on an average with Chase banking.
"Our partnership links Chase and its customer base with CurrentC’s extensive network of leading retailers, restaurants, grocery stores and fueling stations, which process over a trillion dollars in transactions annually at more than 100,000 U.S. locations. This is a significant milestone, not just for MCX and Chase, but for mobile payments overall as the industry continues to take shape. Everywhere CurrentC is accepted, Chase Pay will be accepted", said Brian Mooney, CEO of MCX.
One of the most interesting aspects of MCX's mobile payments system is that it relies on QR codes rather than tokenized NFC transactions, which means Chase Pay will be using the same scheme. MCX`s digital wallet CurrentC has been a rebellion in Silicon Valley utilizing the QR codes, that are believed to become obsolete and thrown out of the game by more efficient contactless NFC technology. However, with a powerful supporter, QR codes may have another chance.
The market of mobile payments is definitely one to keep an eye one with the largest tech companies and banks entering the space. According to a survey from Verifone, cited by Reuters, mobile wallets only accounted for around 4 percent of the overall payments market for in-store retail transactions. The meaning of that for the industry is that companies looking to develop their own payment solutions are still have a chance to win in the marketplace and, possibly, even defeat solutions from Apple and Google, as well as those from third parties, like PayPal, Stripe and others.
Now we have Apple Pay, Samsung Pay, Android Pay, and Chase Pay entering the market soon. With the main idea to make payments more convenient for the customer, does a fragmented payments industry actually add value? What is the possible impact of the Chase Pay on the industry?
First, new player in the market, especially Chase size, will increase the pressure on the other providers. With the customer base that the bank has, it can certainly decrease the speed of adoption of other payment systems among Chase clients.
The other important point here is the digital wallet CurrentC that will be processing Chase Pay transactions. With retail giants standing their ground with CurrentC resisting Apple Pay, Chase Pay is strengthening the position of the wallet. Bad news for the Apple Pay and other Pay`s, - if MCX was resilient to them before, with Chase Pay it is going to be even stronger.
Chase Pay entering the market in mid-2016 means several things: raised competition for all other payment solutions providers (banks and FinTech), strengthened position of MCX and, hence, CurrentC and inhibition of the Apple, Samsung, Android Pay`s adoption due to enormous customer base of Chase financial products.
However, those are not the only ways Chase Pay can shake up the industry. Chase was able to win extremely beneficial partnerships with MCX because of the lower cost of the solution. With fierce competition in FinTech sector and particularly in payments, along with the speed of innovations, the net margin from processing transactions for the companies is getting lower and lower. The way Chase Pay can become a serious headache for Apple Pay and others is laying in the fees. The fees for Chase Pay transactions will be lower than for payments made with traditional methods (debit and credit cards). JPMorgan Chase is innovating the approach to win in the marketplace, - the company is willing to sacrifice the part of the profits it is getting from its own traditional financial products in order to transform the banking and stay relevant. However, the money matter doesn’t end here. Not only Chase Pay will be a cheaper solution, it will utilize a different billing model – fixed fee. Current model domineering in the space is based on the volume charging, when retailers have to pay a certain fee from each transaction processed. Chase Pay offers a different approach to make it cheaper for retailers, which can also contribute to the market penetration.
There are certainly number of positive signs Chase Pay has a chance to become a strong market player and change various aspects the industry operates. However, with strong value proposition for businesses, Chase Pay may fail on a consumer side. One of the reasons is the mentioned earlier QR code, which believed to be pushed out of the market. Efficiency of contactless NFC technology is so deep in the habits of the customers, that Chase Pay`s QR code may never take off and become a gravestone of the solution.
With NFC-based payments, users don’t have to launch an app. All they need to do is just hold their phone near a terminal. But Chase Pay will require users to unlock their phone, find and launch CurrentC app, display the QR code, and wait for it to be scanned. In the market where innovation is moving towards faster easier solutions, it may seem as too much steps for customers to take.
Another interesting aspect with Chase Pay is the data gathered from the customers. With Apple Pay and FinTech world trying to be the evangelists of a data privacy, Chase Pay gives merchants an edge of accessing the data. Merchants not only will have the advantage of a network that includes no network or processing fees and no merchant fraud liability, they will also get shoppers’ data. That is exactly what the mainstream is fighting now. Will that give Chase Pay an edge winning merchants? Most likely. It also may change the game if Chase Pay gains more power in the market towards merchant-favored data processing, when consumers won't have a luxury of privacy anymore. On the other hand - it may work against consumer adoption.
MCX being Chase Pay`s backbone gives platform an opportunity to roll out throughout over 100,000 retail locations across the U.S. The MCX members Walmart, Target, Best Buy and Shell, have stores in the big-box, convenience, pharmacy, fuel, grocery, quick- and full-service dining, specialty-retail and travel categories. Partnering with such a powerful set of companies and strengthening the position of their digital wallet gives Chase Pay a viable chance to push back all other Pay`s.