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Here's why Rite Aid and CVS turned off Apple Pay

Matt Hamblen | Oct. 28, 2014
Recent moves by Rite Aid and CVS to stop taking mobile payments from Apple Pay and other NFC-enabled systems stem from a protracted battle between major U.S. retailers and Visa and MasterCard.

Apple didn't even list CVS and Rite Aid as supporting Apple Pay among the 39 merchants it named on Oct. 16 that would initially support the service. Even so, some Apple Pay users said they were able to use the service at those stores for a short while, only to see the capability turned off. Incensed customers in a message board said they would take their drugstore business to other retailers such as Walgreen's, which supports Apple Pay.

An internal Rite Aid memo obtained by SlashGear instructed store employees to tell customers that Rite Aid is working with a group of large retailers to make its own mobile wallet available next year, presumably referring to CurrentC.

Rite Aid and CVS weren't the first to turn off NFC payments. In March, Computerworld found that Best Buy and 7-Eleven stores had turned off NFC payments. Both are members of MCX. At the time, the move affected NFC payments using Google Wallet, Softcard (earlier known as Isis), and some others. But Apple Pay is widely expected to be more popular than other NFC models.

Litan argued that Visa and MasterCard might have grounds to file a lawsuit against retailers like CVS and Rite Aid if the card companies argue that all forms of their cards, even on an iPhone, should be acceptable in a store.

However, Peter Olynick, payments lead of Carlisle and Gallagher Consulting Group, said he doesn't see grounds for that kind of lawsuit. "It's up to the individual merchant what type of payment terminal they use and whether it's a card swipe or imprint machine or whatever," Olynick said.

He said MCX is finding ways to "sidestep Visa and MasterCard" and will probably allow payments over CurrentC to be made by what's known as an Automated Clearing House from a personal checking account that charges far lower fees to merchants than banks do for credit cards.

Credit card fees paid by merchants can run from 2% to 4%, with smaller retailers paying higher rates. By comparison, Square's technology allows any small business to attach its square card reader to a smartphone or tablet for a 2.75% fee.

Consumers might not care what fees a retailer pays to a credit card company, but it has become a major concern to large stores who have argued that lower fees could result in lower prices to consumers. "MCX has mobilized a fleet of the most powerful retailers in the US, giving them considerable bargaining power," said Jordan McKee, an analyst at 451 Research. "A group of high-volume merchants oriented around a common goal, with a collective, deep-seated hatred for swipe fees, is clearly something that the payments industry cannot completely disregard.


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