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 The largest U.S. bank is the latest company to try to profit from
the prevalence of smartphones, which many financial executives
believe will one day be consumers' preferred way to pay for
everything from milk and eggs at the supermarket to a rental car at
an airport.
The companies that figure out how to convince consumers to stop
pulling credit cards out of their wallets and start paying with
their phones stand to earn vast sums by taking a percentage of the
trillions of dollars that consumers spend annually.
No clear front-runner has emerged in the business yet. Chase
believes its smart phone application, known as Chase Pay, has one
key advantage: the caliber of retailers it has brought on board,
Gordon Smith, chief executive of the bank's consumer business, told
Reuters.
Chase has signed a deal with the Merchant Customer Exchange, a group
of major retailers including Wal-Mart Stores Inc, <WMT.N> the
largest U.S. retailer, and Best Buy Co Inc <BBY.N> to accept
payments through the bank's technology.
Retailers included in the Merchant Customer Exchange ring up more
than $1 trillion of sales per year and have over 100,000 outlets.
Rivals like Apply Pay have struggled to sign up retailers to accept
their payments. In June, Reuters interviewed the top 100 U.S.
retailers and found that two-thirds said they did not plan to accept
Apple Pay this year.
Apple Inc's <AAPL.O> Apple Pay's website lists Best Buy in its
"Coming Soon" section but has no mention of Wal-Mart.
Chase signed up the Merchant Customer Exchange mainly by promising
to cut retailers' costs, Smith said. Whenever a consumer pays for
something with plastic, the retailer pays fees to banks and credit
card networks to process the transaction.
Chase is willing to accept a lower fee for Chase Pay transactions
than for other transactions, and hopes to make up the difference by
getting more volume over its network, Smith said.
"As merchants give us more business, we will give them better
pricing," Smith said in an interview. Chase declined to comment on
how much it would cut fees.
Chase expects to market its product heavily in the middle of next
year. Smith is speaking to retailers about Chase Pay at a conference
about payments on Monday in Las Vegas.
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David Robertson, publisher of the Nilson Report, which tracks the
card business, said JPMorgan's bid matters to players throughout the
industry because of how many cardholder and merchant customers the
bank has. "The whole thing is about scale, and Chase is a titan,"
Robertson said.
Chase Pay is also promising superior security, a critical selling
point after retailers including Target Corp and Home Depot Inc
suffered from hacking attacks, Smith said. Longer term, Chase also
hopes merchants will offer more discounts through Chase Pay,
encouraging consumers to use the technology more.
Chase Pay will initially work for consumers that already have Chase
credit, debit, and prepaid cards, Smith told Reuters in an
interview. There are about 94 million of those cards outstanding now
in the United States, and the bank has more spending on them than
any other issuer. The app will work on Apple and Android-based
phones.
JPMorgan Chase's consumer bank has already factored the system's
near-term launch costs into its expense estimates, and expects the
benefits to come over the medium to long term.
The bank will continue working with Apple Pay and other services
even as it builds a rival, Smith said.
Chase Pay is just one of a series of companies trying to become the
go-to payment technologies, including Apple Pay, Samsung Electronics
Co Ltd's Samsung Pay, and Alphabet Inc's Android Pay.
(Reporting by David Henry and Nandita Bose in Las Vegas, editing by
Dan Wilchins, Christian Plumb and Alan Crosby)
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