JPMorgan challenges Apple Pay with mobile app offering discounts

[WASHINGTON] Buy a shirt from your favorite store while using a coupon and collecting reward points - all with a tap or swipe of your phone or tablet - and you'll even help shave the retailer's costs.

That's JPMorgan Chase & Co's pitch for its new digital wallet, a mashup of payment technologies that the biggest US bank unveiled on Monday to challenge rival lenders, systems like Apple Inc's Apple Pay and a variety of other companies including PayPal Holdings Inc.

JPMorgan is looking to speed adoption of its digital payment systems in stores and online by paring some transaction fees for retailers, interacting with their existing loyalty programs, and partnering with the Merchant Customer Exchange, a consortium with backers including Wal-Mart Stores Inc. The bank will roll out the service to its legions of cardholders in mid-2016.

"I'm not sure anyone else has embedded the merchant value proposition in the same way that we have," Gordon Smith, head of JPMorgan's consumer bank, said in an interview. "We're bringing 94 million preloaded accounts, our customers, immediately to the product. The customer has to do nothing but accept the terms and conditions and then we preload the data for the customer. That's very significant." Big banks, networks, retailers and technology companies are battling for control as US consumers change how they pay for just about everything, replacing plastic cards with mobile phones, watches and other digital devices. Mobile payments are expected to reach US$142 billion in the US by 2019, up from US$52 billion last year, according to Forrester Research Inc. Still, the shift to new systems has been slow so far, leaving some payment startups struggling and trillions of dollars flowing through cards.

JPMorgan's new system, Chase Pay, can be used with all of the bank's credit, debit and prepaid cards that are processed by Visa Inc, including co-brand cards. It's joining a crowded field that has proven difficult for some big companies. In the year after Apple Pay debuted with much fanfare, it failed to capture a significant share of purchases, accounting for 1 per cent of all retail transactions in the US, according to Aite Group. One hurdle for new payment systems, according to surveys, is that consumers don't see an obvious benefit to ditching plastic, where they can collect points redeemable for additional purchases, travel or cash. A study by the Federal Reserve in 2014 showed just 17 per cent of US smartphone users made a mobile purchase in the previous 12 months.

To counter that, Chase Pay enlisted partners including Merchant Customer Exchange, founded in August 2012 with funding from Wal-Mart, Target Corp. and Best Buy Co Chase Pay will mesh with MCX's app, CurrentC, which ties into retailers' loyalty and rewards programs. The arrangement means Chase Pay has an opportunity to handle more of the US$1.2 trillion in annual spending at MCX member stores. CurrentC began testing in August after almost three years in development.

Another hurdle for new payment systems has been the slow pace of acceptance at stores. Retailers have pushed for decades in negotiations, courts and Congress to shrink the swipe fees that banks and networks reap on credit-card transactions. To encourage stores to accept Chase Pay and promote it to their own customers, JPMorgan reduced merchants' total costs by wiping out a bunch of fees that typically go to middlemen as part of a partnership the lender has with Visa. The firm also is offering to cut prices even more for merchants whose customers use it a lot.

"There's no network fees, no merchant-acquiring fees, we will not charge them back for fraud once we've approved a transaction, and we will also give them the opportunity to drive down further their cost of acceptance based on how much volume they do with Chase," Mr Smith said. "The economics are extremely positive to us because we'll be driving significantly more volume, that's the intention." He unveiled the new service during the annual financial technology conference in Las Vegas known as Money 20/20.

JPMorgan's system features a fraud-prevention technology known as tokens, which replaces some account information with a digital ID. Visa will provide the token services, putting the network at the center of consumer data that's collected in the process. Chase Pay will use quick-response codes.

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