Sizing Up the Merchant Customer Exchange
Eric is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The Merchant Customer Exchange made the headlines recently as several large retailers decided to set up their own mobile payment network, which demonstrated that companies from many sectors want a piece of the mobile payment market. The challenge for investors is determining how big the mobile payment market will be in a few years, and what kind of impact it could have on these companies' revenue and sales figures. The exchange members include merchants from several sectors, including discounter Wal-Mart (NYSE: WMT), restaurant group Darden (NYSE: DRI), home improvement store Lowe's (NYSE: LOW), and oil company Sunoco (NYSE: SUN), reported Robin Sidel at the Wall Street Journal.
The Merchant Customer Exchange members include large retailers that could potentially sell their products to anyone in the world. A shopper might not necessarily buy a product from a single member, since she might not like to eat at Darden's Red Lobster or buy supplies at Lowe's to fix up her home, but she will probably shop at one alliance member's store at some point. This means that the Merchant Customer Exchange has a very large theoretical user base, such as everyone who uses credit cards or cash at a store. This is a very long term perspective because most people in the world do not own near field communication enabled smartphones, but it does show how big the market could get in a few decades. Google, Paypal, Square, and other companies also offer their own mobile payment services, so the Merchant Customer Exchange won't capture the entire mobile payment market.
The Merchant Customer Exchange does have to convince shoppers to use its own network instead of other networks like Isis. Loyalty incentives could be more effective than usual because of the wide variety of merchant members in the program. Many merchants offer loyalty programs for their own stores, but a Merchant Customer Exchange loyalty program could offer a discount at several major stores, as well as much faster checkout times. The merchants could also decide not to work with their competitors' networks, although the merchants would run the risk of irritating their customers and slowing down their checkouts.
Mobile payments might be able to help Sunoco get more revenue out of its APlus convenience stores. Payment at the pump is already fairly quick with a credit card, but a shopper might have to wait in line inside to buy some snacks. A long line could convince a shopper to skip the snacks, especially if he's in a rush to get to work, so Sunoco might be able to pick up a few more sales here. Soft drink, coffee, and snack sales can make a big difference for a company that has limited room to raise prices on its main attraction, gasoline.
Darden and Lowe's might see smaller benefits from mobile payments. Diners at Red Lobster and Olive Garden typically sit down for a while to eat a meal, so speeding up payments by a few seconds doesn't seem like it would boost Darden's sales that much unless a restaurant had extremely high traffic during the lunch rush. It also doesn't seem like mobile payments would be as helpful for Lowe's since many of its customers are contractors making large purchases, where price might matter more than speed.
For Wal-Mart, the Merchant Customer Exchange could make a big difference. Like Conoco's APlus stores, Wal-Mart's smaller stores focus on convenience. Although a slightly quicker checkout wouldn't make up for an hour's drive to a supercenter, reducing the length of the line at a Neighborhood Market could lead to a lot more impulse buys.
Mastercard (NYSE: MA) conducted its own survey that showed that shoppers who didn't have to physically scan their cards spent 30 percent more, reported Sarah Clark at NFC World. The article doesn't break down this spending by retailer or sector, but it does show that shoppers in every demographic might spend more money after retailers roll out Merchant Customer Exchange. Roger Cheng, at CNET, reports that Mastercard is working on its own mobile payment service, although it isn't available at physical stores for now. Nevertheless, Mastercard's service might compete with Merchant Customer Exchange in the future. The mobile payment market has become fairly crowded recently, but the Mastercard survey does show that mobile payments could have a decent payoff for the Merchant Customer Exchange members.
enovinson has no positions in the stocks mentioned above. The Motley Fool owns shares of Darden Restaurants and MasterCard. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.