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Tier 1 Merchants Want You to Open Your (Mobile) Wallet

If you thought there was no room for yet another m.wallet competitor, think again. More than a dozen of the largest Tier 1 retailers in the US have joined forces to create the Merchant Customer Exchange (MCX), which will develop a mobile wallet app that enables consumers to pay, redeem coupons and receive personalized offers via smartphone at participating merchants. Founding members of the MCX consortium include Wal-Mart, Target, 7-Eleven, Best Buy, CVS, Lowes, Shell and Sunoco (among others), but if the MCX m.wallet is well received among consumers, we expect other merchants will be likely to join in the future.

No definitive statement has yet been made regarding which technology will enable transactions conducted with the MCX m.wallet, but announcements made by MCX member companies suggest the app will work on most smartphone types. While we cannot say for certain, the fact that this app will be available to most common smartphones implies that it will be 2D barcode- or QR code-based, not NFC. Although NFC is becoming increasingly common in higher-end smartphones, it is far from the level of adoption these major Tier 1 retailers would require in order to rely on it as the exclusive enabler of the MCX wallet. Perhaps the MCX app will take a dual technology approach (i.e., QR/barcode and NFC) to enabling payments, but based on early statements made by MCX member companies and the fact that US NFC adoption is extremely low, we believe it is extremely unlikely that NFC will play a significant role in the early days of MCX.

For early entrants to the m.wallet game, such as Google Wallet, we believe the emergence of the MCX could present the greatest challenge yet in building towards a critical mass of consumer and merchant users. While Google Wallet has been available for over a year now, adoption has been weak and hamstrung by various factors, including attempts by MNOs to block the app from phones using their networks, limited merchant participation (it can only be used where MasterCard PayPass is accepted), security concerns and (until version 2.0 was released earlier this month) the fact that only one payment card type could be linked to the app.

We think the most formidable challenge this new competitor will present to Google Wallet and other m.wallets (e.g., ISIS, if its alleged summer pilot ever happens) will be in their efforts to build a robust base of participating merchants. If MCX adoption ramps up more quickly than Google Wallet has to date, we expect merchants evaluating the acceptance of an m.wallet will be more inclined to join the MCX consortium instead of Google. Furthermore, several of the founding merchants behind the MCX initiative are currently involved with Google Wallet—so this new joint venture could also potentially erode what progress Google has made so far.

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