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Clash of the titans: Wal-Mart rejects Apple Pay to pursue a competing mobile payment system

Demonstration of how the new Apple Pay works during Apple’s launch event in Cupertino, Calif. EPA/MONICA DAVEY

Wal-Mart said it will not join Apple’s new mobile payment system and will continue developing a separate one, setting up a high-profile race to define how Americans will pay for products in the future.

The contest between the world’s most valuable company and the world’s largest retailer has the potential to create competing systems, confusing shoppers who already look askance at using their smartphones and other gadgets to pay for goods. Yet with two such powerful advocates behind this technology, consumers may eventually find it difficult to hold onto their old-fashioned credit cards and wallets.

The two giants hold tremendous sway over marketplace. Apple has put a smartphone in the hands of tens of millions of people in the United States and has partnered with a broad coalition of the country’s biggest banks, credit card companies and prominent retailers, including Disney, McDonald’s and Macy’s, to launch its new mobile payment system, called Apple Pay.

Wal-Mart has a far bigger customer base — hundreds of millions of people shop at its stores every week. And the retailing giant is one of dozens of well-known brands that have rallied behind a different mobile payment method called CurrentC. Others include Target, 7-Eleven, Southwest Airlines, the Gap and Shell gas stations.

“There will be a dominant player to come out of CurrentC versus Apple. I’m not willing to handicap either one right now…you’ve got major players in CurrentC, you’ve got eight of the top banks and credit card issuers in Apple Pay,” said Michael Archer, a partner at retail consultancy Kurt Salmon Associates. “The interest level in the space is always going to be challenged if there are competing players. The opportunity, and maybe a need, for convergence is there.”

Apple Pay will launch next month. The pilot for CurrentC began earlier this month; the nationwide roll-out is expected next year.

Officials at Wal-Mart declined to comment beyond a statement that they have no plans to join Apple Pay. Apple did not return multiple requests for comment about Wal-Mart’s decision.

Retailers may have greater financial incentive to join CurrentC than Apple Pay.

If broadly adopted, CurrentC could impose a radical change on the credit and debit card system. Customers can either load cash onto the app or allow the app to take funds directly out of a checking or savings account — it cannot be linked to a credit card yet. That means Wal-Mart and other retailers would avoid paying “swipe” fees — the money merchants pay banks every time a shopper swipes a credit or debit card. The stores plan to use those savings to offer discounts to consumers who adopt the system. The network of retailers is also expected to cover the cost of fraudulent purchases, which generally are paid for by banks today.

Perhaps not surprisingly, Apple announced this week that every major bank and the three primary credit card companies had joined Apple Pay.

Both CurrentC and Apple Pay require shoppers to pay for goods and services using an app on their smartphones. Such systems are touted to be more secure than an ordinary credit card, which are particularly vulnerable because the account number, expiration date and security code easily can be stolen and used for fraudulent purchases. Last year, hackers breached the internal systems of Target and other stores and gained access to the credit card information of millions of shoppers. Recently, Home Depot suffered a similar attack.

But the two systems have key differences.

For one, CurrentC works on any smartphone, not just the iPhone, so it has a larger potential market. When a shopper is ready to buy a product, the CurrentC app creates a type of barcode — called a QR code — that can be recognized by most scanners at the check-out line today.

Apple Pay uses a chip that sends signals a short distance through the air using technology called Near Field Communication, or NFC. But only 10 percent of merchants have active sensors that can read such signals and such devices can cost around $500 to install. However, retailers have been ordered by credit card companies to upgrade their registers to models that likely will include NFC technology.

Apple’s system allows users to load their credit or debit card onto an iPhone. A consumer would merely need to hold the smartphone close to a NFC sensor and confirm the purchase with a fingerprint scan. The merchant would get two codes: One would identify the credit card; the other would be a one-time authorization code. Even if a hacker somehow stole both, they couldn’t be used for any other transaction.

Apple has said that it has no interest in tracking the purchases shoppers make through Apple Pay. Company executives said this week the details of any transaction would only be known by the shopper and their financial firm. CurrentC’s organizers have not yet said whether retailers will track purchases made with their system, but many analysts expect them to do so. Many chains already track their customers’ shopping behavior through loyalty cards or even by monitoring how they move through the aisles of a store.

James Wester, research director of global payments at IDC Financial Insights, said the entrance of Apple into mobile payments will expand the market to the benefit of all of those involved. Until now, iPhones did not come with the NFC chip, which makes the upgrade valuable to the broader industry. But he added that CurrentC has an edge because the money they are saving by cutting banks and credit cards out of the equation will give them room to offer discounts, rewards or loyalty programs that could drive sales, he said.

“Just because Apple is now responsible for us getting to this tipping point doesn’t mean Apple is necessarily going to win,” Wester said. “They’ve got a very cool solution that is very similar to the solution that other people have come out with, but Apple is really good at user experience and has loyal customers. … That’s something you can’t discount.”

On the other hand, it’s an open question whether consumers will trust either system with their most personal financial information. It’s possible that neither will draw enough consumers toward a digital payment alternative that has had many fits and starts. Google and other companies have mobile wallet systems that have simply failed to gain traction, and there is no telling whether Apple Pay and CurrentC will meet the same fate.

“While these two platforms are big enablers that does not automatically guarantee success. We still need to see whether consumers will find the value proposition enough to start using the system,” said Rajesh Kandaswamy, a research director at Gartner. “This pits powerful players against each other, but they are not the only ones.”