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Competition Brews In the World Of Mobile Payments


When tech enthusiasts go to the store, they'd love to leave their wallets behind and pay with mobile phones instead. For companies such as Apple and Google, this seems like an obvious opportunity. But breaking into the mobile wallet business is proving much harder than many expected. Google Wallet was introduced a few years ago. It flopped. And now the much-hyped Apple Pay has hit a stumbling block. CVS and Rite Aid announced over the weekend that they will not accept Apple's new payment system. To explain why, NPR's Steve Henn joins us now. He covers technology for Planet Money. And, Steve, what went wrong here? Why won't these drugstore chains let Apple fans pay with their phones?

STEVE HENN, BYLINE: Well, I have a one-word answer - money.

SIEGEL: OK, can you elaborate a little bit on that?

HENN: Sure, yeah. So Apple Pay works on top of Visa and MasterCard. You know, this is the same system we all use all the time when we go into a store and make a credit card purchase. Now, for years, merchants everywhere - from Walmart to your tiny little local coffee shop - have kind of hated this system because there's a transaction fee built into it that takes three percent of the purchase price. And if you think about it, merchants take trillions of dollars of transactions every year in credit cards, so this adds up to tens of billions of dollars in fees that go directly to Visa and MasterCard. They were hoping that systems like Apple Pay would introduce some competition into this market. But instead, Apple built its system on top of credit card companies.

SIEGEL: So these are retailers who actually have been in a consortium developing an alternative to Apple Pay, which I gather is called CurrentC. And that would not use our credit cards? That would access our bank accounts directly?

HENN: That's right. So few years ago, a huge group of merchants, including Walmart, Target, CVS, Rite Aid, many gas stations, got together to try to build their own electronic payment system that would circumvent Visa and MasterCard. That would save merchants a lot on fees. The other thing that these merchants really want is they want the data that's collected when you go into the store and make a purchase. So they've spent years developing their own system. It's a little awkward. It uses something called a QR code, which is like a hashed up barcode. And people are skeptical whether or not it will be attractive to users.

SIEGEL: Well, does the fact that Apple, a company synonymous with making things that are attractive to users, has lost these two big retail drug chains - is that bad news for the entire idea of the virtual wallet?

HENN: Well, you know, I think it's going to be interesting to watch this play out. There are some huge companies that are part of this consortium. CVS and Rite Aid are really relatively small in comparison. If all of these merchants decide to abandon Apple Pay, I think they're large enough to kill it. But many seem to be playing along so far. And consumers who use this and are interested in paying with their phones seem to like the system. So I think over the next six months to eight months, we're really going to see whether or not Apple Pay takes off and merchants feel like they have to take it or lose business, or if it dies.

SIEGEL: But, Steve, here's my real question. I understand what's in it here for Apple. I understand what's in it for the merchants, what might have been in it for Google. But really, for consumers, who can use a debit card and then enter - swipe it and then enter a brief code, is there really a great advantage of being able to reduce it - to make that transaction time that much shorter?

HENN: Well, that's one of the reasons that all of these (laughter) efforts have struggled. It's not that hard to pay with a credit card, and to create an obviously better system for consumers is a really high bar.

SIEGEL: Thank you, Steve.

HENN: My pleasure.

SIEGEL: That's Steve Henn of NPR's Planet Money team. Transcript provided by NPR, Copyright NPR.

Steve Henn is NPR's technology correspondent based in Menlo Park, California, who is currently on assignment with Planet Money. An award winning journalist, he now covers the intersection of technology and modern life - exploring how digital innovations are changing the way we interact with people we love, the institutions we depend on and the world around us. In 2012 he came frighteningly close to crashing one of the first Tesla sedans ever made. He has taken a ride in a self-driving car, and flown a drone around Stanford's campus with a legal expert on privacy and robotics.
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