Coverage: CVS, Rite Aid drop Apple Pay

Apple’s new payment system has been around for less than two weeks and it’s already coming under fire. Over the weekend, two of the nation’s drugstore chains decided to stop accepting it.

The New York Times had this story by Mike Isaac:

Apple Pay, the Silicon Valley giant’s highly anticipated mobile wallet, has been available for only one week but already may be inciting a battle within the payments industry.

Over the weekend, Rite Aid and CVS disabled Apple Pay from working in their stores nationwide. The reason was not immediately clear.

Ashley Flower, a spokeswoman for Rite Aid, said the company “does not currently accept Apple Pay.” She added that Rite Aid was “still in the process of evaluating our mobile payment options.”

Representatives from CVS did not respond to repeated telephone and email requests for comment on Sunday.

Analysts said disabling acceptance of Apple Pay was a way to favor a rival system that is not yet available but is being developed by a consortium of merchants known as Merchant Customer Exchange, or MCX. Rite Aid and CVS are part of that consortium, not part of the group of retailers that had teamed up with Apple on its payment system. Nonetheless, over the week, Apple Pay technology was working in Rite Aid and CVS stores.

USA Today wrote in a story by Paul Ausick that the issue is between Apple and another payment system:

The issue appears to be a conflict between Apple Pay and a mobile payment system called CurrentC that is being developed by a retailer-owned mobile technology outfit called Merchant Customer Exchange (MCX). Unlike Apple Pay, CurrentC does not use an NFC chip, but instead generates a QR code that is displayed on the merchant’s checkout terminal. Customers who have already linked their bank accounts to the CurrentC system scan the QR code from the terminal and the transaction is completed

When Apple announced Apple Pay in early September, both Wal-Mart Stores (WMT) and Best Buy (BBY) said they had no plans to adopt the new system. Both are partners in MCX along with other major retailers like Target (TGT), Darden Restaurants(DRI), and Sears Holdings (SHLD).

MCX has been working on a mobile payment solution since 2011, and the driving force behind the effort is to enable the merchants to avoid paying the 2% to 3% credit card transaction fees charged by the likes of Visa (V) and MasterCard (MA). How much do these big retailers dislike paying fees to Visa and MasterCard? Former Walmart CEO Lee Scott is reported to have said, “I don’t know that MCX will succeed, and I don’t care. As long as Visa suffers.”

Tim Higgins and Zeke Faux wrote for Bloomberg that there’s a lot of money at to be made in the payments industry:

At stake is a market that’s projected to jump to $90 billion in 2017 from $12.8 billion in 2012, according to Forrester Research Inc. Apple’s entry into mobile payments follows efforts by Square Inc., Google Inc. and Softcard — a wallet application backed by the three largest U.S. wireless carriers — that all failed to gain widespread appeal.

Chief Executive Officer Tim Cook is trying to push Cupertino, California-based Apple into new businesses that further immerse users in the Apple digital ecosystem, which encourages repeat purchases over time.

CVS and Rite Aid are part of a consortium of retailers called the Merchant Customer Exchange that has been working on its own mobile payment system to help bypass credit card companies. The group’s system, called CurrentC, is in pilot tests in select locations across the country with plans for a national rollout next year, according to a statement on its website. Network members include Wal-Mart Stores Inc. (WMT),Lowe’s Cos. (LOW) and Target Corp. (TGT), the website shows.

Apple’s strategy is the opposite. It partnered with the major banks and credit card companies — Visa Inc., MasterCard Inc. and American Express Co. — that Apple says account for more than 80 percent of U.S. credit-card purchases, allowing the iPhone maker to piggyback on their checkout systems. Apple will also collect fees from the card issuers, according to three people familiar with the deals who weren’t authorized to discuss them.

Apple Pay works on the company’s new iPhone 6 and 6 Plus, which have so-called near-field communication technology built in. The big catch for Apple is that merchants have to upgrade their credit and debit card systems to them read those short-wave signals.

It’s a blow to Apple to have its newest product come under attack so quickly after its launch. Apple is trying to move into a huge untapped market and many of the other payment systems are trying to keep the behemoth out of their space. But given what’s at stake, it’s hard to see Apple giving up without a fight.