Apple, retailers at odds over mobile payments

When retailers CVS and Rite Aid disabled access to Apple Pay over the weekend, the companies kicked a consumer hornet's nest.

Angry customer tweets followed the sudden shutdown Sunday, with some Apple Pay users implying they would stop shopping at the pharmacies. Some analysts feel this brief and perhaps inadvertent exposure to Apple's near-field communications (NFC) payment model may lead to these chains' inevitable acceptance of the new payment system.

"It could get ugly for CVS and Rite Aid if consumers are asking for Apple Pay," says Patrick Moorhead of Moor Insights & Strategy, adding that the more iPhone 6 models that move into circulation, the more pressure there may be to adopt Apple Pay.

"What's more, if (CVS and others) consider getting rid of their NFC readers for scanners, they would also be eliminating the opportunity to use PayPal and Google Wallet," he says. "Ultimately, they could consider offering customers both options."

The national pharmacy chains are among several companies joining forces on the Merchant Customer Exchange (MCX), a network of retailers banding together to launch their own mobile payments service, CurrentC, which could become a potential rival to Apple Pay.

For retailers, the goal of CurrentC is to avoid credit card processing fees, which generally amount to 2% to 4% of each individual transaction, says research firm eMarketer.

"You could argue it's really a solution for them," says eMarketer financial analyst Bryan Yeager. "It's not so much a solution that's targeted at the customers."

Over the weekend, CVS reportedly followed Rite Aid in shutting down support for Apple Pay, which launched last week. "At this time, CVS/pharmacy cannot accept Apple Pay or other mobile payments that use NFC technology," the company said in a statement. "We are in the process of evaluating mobile payment options for our customers."

In a separate statement, Rite Aid said they are "still in the process of evaluating our mobile payments options."

Apple Pay uses NFC technology to process contact-less payments. Users hold an iPhone 6 or iPhone 6 Plus next to a sensor that automatically processes the payment.

"The feedback we are getting from customers and retailers about Apple Pay is overwhelmingly positive and enthusiastic," Apple said in a statement. "We are working to get as many merchants as possible to support this convenient, secure and private payment option for consumers."

CurrentC uses quick response (QR) codes to handle payments in store. When a user is ready to pay, they pull up the CurrentC app to either scan a QR code from the cashier or vice versa. Users can also opt to type in a PIN code.

CurrentC boasts several high-profile retailers as supporters, including Best Buy, Target and Walmart. Before Apple Pay launched, some MCX retailers started disabling NFC features in stores, says Yeager, ahead of next year's CurrentC rollout. And it's likely more outlets backing CurrentC will cut off NFC support.

"It's incumbent upon them to do a good job of driving consumer adoption with their own mobile wallet," says Yeager. "If they don't, and people prefer to use something like Apple Pay, maybe they'll capitulate."

Ultimately, the sheer ease of Apple Pay use — your iPhone 6 can even be asleep and simply moving it near a store's NFC's reader will make the transaction go through — makes it tough competition, says Sterne Agee analyst Tom McCrohan.

"That part is so incredibly important, especially when you consider that past (mobile payments systems) have failed essentially due to inconvenience," he says. "Customers have essentially said, if it's not easier than me swiping my credit card, I won't use it. Apple Pay addressed that."