Retailer-Owned MCX M-Payments Network Takes Shape with FIS As Processor

Merchant Customer Exchange (MCX) on Thursday announced that Fidelity National Information Services Inc. (FIS) will do the transaction processing for the nascent mobile-payments network owned by some of the nation’s largest retailers.

MCX also said department-store company Kohl’s Corp. and the parent company of the Circle K convenience-store chain are now members, but the network is still searching for a chief executive.

Jacksonville, Fla.-based FIS, one of the nation’s biggest payment processors, joins chip card producer Gemalto N.V. as a key back-office partner of MCX, which aims to provide retailers with a lower-cost alternative to the major card networks as consumers begin to using smart phones to pay for purchases. MCX’s 30-plus owners, which include Wal-Mart Stores Inc., Target Corp., and 7-Eleven Inc., operate nearly 90,000 stores and take in more than $1 trillion in payments annually.

But Dodd Roberts, a member of Dallas-based MCX’s executive team, won’t yet say when the network will go live, saying there is more work to be done even though Gemalto and FIS already have done considerable development. “We haven’t talked about timing yet, I know that’s the big question everyone wants to know,” Roberts tells Digital Transactions News.

Roberts also won’t say how many processors MCX considered before choosing FIS, which he describes as “best in class, their global, they’re strong.”

FIS owns the NYCE electronic funds transfer network, which could link virtually all U.S. consumer bank accounts with merchant locations on the national scale that MCX seeks. FIS is building a real-time debit payment system for MCX that includes authorization, routing, and settlement, but it won’t use the NYCE brand.

“It is operating within the same processing infrastructure as NYCE; however, it is its own network,” says Nancy Langer, executive vice president, Money Movement, at FIS. “Think of it as an MCX version of the NYCE network.”

Langer adds that, though the system will facilitate real-time debit transactions, at least initially it will not use NYCE’s new PayNet system that offers real-time person-to-person and bill payments through the NYCE switch.

Customers paying with a smart phone or tablet computer at an MCX merchant will enter a PIN at the point of sale in much the same way they do for a PIN-debit card transaction. Depending on the merchant’s configuration, the POS terminal or the mobile device’s screen will display a unique QR (quick response) code. Either the shopper will snap a photo of the code or the cashier will scan it when it appears on the customer’s smart phone, says an FIS spokesperson.

FIS and MCX also are working on other new services that neither Roberts nor Langer will discuss in detail. They might, however, offer a variant of a decoupled debit system in which a customer could initiate an automated clearing house withdrawal from her bank account from an account provided by a different financial institution.

But how decoupled debit would work for MCX is not clear now that the competitive and regulatory environment is so different from when it was first tried the better part of a decade ago. Credit card issuer and bank owner Capital One Financial Corp. tested decoupled debit but never rolled it out. Cap One never said why, but industry insiders speculated that, at the behest of Capital One’s bank rivals, ACH network governing body NACHA in late 2007 issued a clarification of a rule about transaction aggregation that made decoupled debit impractical.

And processor Tempo Payments, which offered decoupled debit cards for local and regional retailers, closed its doors after Congress passed 2010’s Dodd-Frank Act, whose Durbin Amendment put price controls on big banks’ debit card interchange. Tempo claimed the Durbin Amendment would cut its interchange revenues in half.

Payments-industry veterans say MCX made a good choice in picking FIS as its processor. “FIS is a very creative, disruptive firm these days, and will make an interesting partner for this endeavor, particularly with respect to private-label use of public networks,” says consultant Steve Mott of Stamford, Conn.-based BetterBuyDesign by e-mail in reference to JPMorgan Chase & Co.’s new processing venture that will license a version of Visa Inc.’s network for use by its own merchants and cardholders. “The trick will be how to manage these new ‘networks,’ given the desire to streamline rules and move away from the one-size-fits-all mentality of the legacy networks. It will be fun to see how FIS and MCX shake up the mix, especially with debit transactions.”

Mark Horwedel, chief executive of the Merchant Advisory Group, an association of large merchants concerned with payments issues, calls FIS a “huge core processor” for financial institutions” and “a big ACH player willing to push the limits on ACH settlement.”

He adds by e-mail, noting that he has no inside knowledge of MCX: “I’ve been telling people that those who ridicule MCX for its lack of a processing solution or lack of rules structure are simply trying to discredit it. Processing is priced at near commodity levels for any large enterprise so there is absolutely no reason for any large enterprise to create its own. As to rules, you don’t need 10,000 pages unless your goal is to avoid transparency.”

Meanwhile, MCX has yet to settle on a chief executive despite months of searching. “We’re still working on that, and are involved in that process, and hope to have that announcement in due time,” says Roberts. “Like a lot of things that MCX has done, [the search] is slow in some people’s estimation. We’re not concerned about doing things fast, we’re concerned about doing things right.”