Is MCX Betting On QR Codes and ACH?

In my recent report on Digital Wallets, I discussed a number of players which while still keeping their cards close to their chests, have a potential to significantly influence the payments market. One of them is Apple, which made headlines recently with their patent for cash distribution without ATMs - see Bob Meara's excellent blog and my related comments for more details. Another one is MCX (Merchant Customer Exchange), a joint mobile wallet initiative amongst a number of the US retailers. The initiative was announced in August 2012, but the details have remained scarce since. The participating retailers have been talking about their desire to have a collective voice in shaping the future of mobile payments, and protect their data and customers. They have talked about developing a wallet, but it hasn't been clear if they also had ambitions to create a new payment scheme or would rather rely on the traditional cards in their wallet. So I was intrigued to come across an article that appears to shed a little more light on MCX ambitions in payments. Citing sources close to MCX, the article suggests that MCX is indeed planning to build a new payment system based on QR codes and ACH payments cutting the transaction costs to 4c. Two cents would go to the FI for processing an ACH payment and the other two would go to the technology partners and towards future MCX development. If it is indeed a confirmation that MCX are inclined to build alternatives to cards, then it is very interesting. However, it is still not clear how such a payments system would work:

• Would the QR code identify the customer, the merchant's payment request or just the merchant?
• Would the customers be asked to register their bank account details with MCX wallet in the cloud? I can imaging this would be a big stumbling block for many consumers.
• Will the transaction be based on ACH debit or credit?
• If it's debit, how will the authorisation happen? If there is no authorisation, will the fraud costs just become unacceptably high negating any savings on the interchange? There is speculation that consumers would be asked to register their debit card, which would be used for authorisation over card network rails, and then the transaction would convert into an ACH debit for clearing and settlement. If that's the case, the overall transcation costs need to include the authorisation fee as well. And it sounds very similar to many decoupled debit propositions, most of which have failed to ignite the market so far.
• If it's credit, the authorisation challenge turns into the authentication challenge. One way to solve it would be to ask a customer to log-in to their bank account (e.g. through a mobile banking app) and authorise a payment to the merchant. Somebody would also need to pass a token to the customer's bank with the payment request details. This is pretty much how Online Banking ePayments (OBeP) networks work; however, attempts to build such a network in the US (e.g. NACHA's Secure Vault Payments) have again had limited success so far.

More questions can be raised and that's just about the technical aspects of the solution. Commercial and other questions might prove to be just as difficult to answer. Will the banks co-operate? Will the proposed restrictions for participating retailers to accept other types of mobile payments (e.g. Isis or Google) work against MCX? Will the stated desire not to share any customer data amongst the participants limit the commercial opportunity? And will the (inevitable) delays to a project of such scale and uncertainty grind the intiative to a halt before it even has a chance to take off? Only time will tell if MCX succeeds. For now, I suggest we continue to keep an eye on its progress with a healthy dose of scepticism.