Barely a week into its introduction, Apple Pay—Apple’s new mobile payment technology, where consumers can make a purchase simply by waving their smartphones—has already hit a roadblock.
CVS Health Corp. and Rite Aid are among 220,000 US merchants that already have Apple Pay technology in place to read short-range wireless signals to enable customers of Apple Pay or similar services to operate. The retailers were not among those specifically named as accepting Apple Pay when the company revealed its new system last month.
However, according to reports, the drug retailers stopped Apple Pay last week and are part of a consortium that is developing a system to compete with the smartphone technology. The website MacRumors.com also earlier reported that CVS and Rite Aid disabled so-called “contactless payment systems,” and Slashgear.com published a purported internal memo in which Rite Aid said it is instead focusing on the consortium’s system.
Merchant Customer Exchange, the consortium of retailers that both drugstores are a part of, has been working on its own mobile payment system to help bypass credit card companies. Called “CurrentC,” the system is in pilot tests in select locations across the country with plans for a national rollout starting next year. According to the website, network members include Wal-Mart stores, Lowe’s, and Target Corp.
Apple, meanwhile, has an opposite strategy of partnering with major banks and credit card companies which account for more than 80 percent of credit-card purchases in the US, Apple says. That’s how it makes money—it collects fees from both card issuers and consumers.
Apple Pay, which is supported by Visa, MasterCard and American Express, is currently accepted at major retailers including McDonald’s, Macy’s, Walgreens, Nike, Whole Foods and Petco. The system uses a technology present only in iPhone 6 and 6 Plus called near-field communication to connect with Apple Pay-equipped payment terminals at checkout.
“This act by CVS and Rite Aid heralds the advent of the imminent battle in the mobile pay system,” said Anindya Ghose, a marketing and information technology professor at New York University.
Both CVS and Rite Aid declined to comment.
Last week, Apple reported that net profit rose 12.7 percent to $8.5 billion. Revenue was up 12.4 percent to $42.1 billion. Apple CEO Tim Cook said in a statement that the company’s fiscal 2014 was “one for the record books” among new iPhone and Mac technology.
“The whole setup and use experience so far is excellent,” said JP Morgan analyst Rod Hall. “Not much impact to Apple’s earnings on our calculations but certainly yet another reason for people to remain locked into the platform.”
Jerry Kim, assistant professor of management at Columbia Business School, agreed that Apple is making moves by continuing to improve services and add retailers to its platform.
“There’s a classic chicken-and-egg problem where if you don’t have enough merchants adopting this, then the value isn’t very high,” Kim said. “It’s unclear whether you can hit that tipping point and make it work.”
(With reports from Los Angeles Times)
