JPMorgan Chase will soon launch a rival product to Apple Pay that will allow consumers to pay retailers using their smartphones in stores, and it has already won the endorsement of a major group of merchants.
The US' largest bank is the latest company to try to profit from the prevalence of smartphones, which many financial executives believe will one day become 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 from the business community yet. Chase believes its smart phone application, known as Chase Pay, has one key advantage, and that is the calibre of retailers it has brought on board, Gordon Smith, chief executive of the bank's consumer business, said.
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Chase has signed a deal with the Merchant Customer Exchange, a group of major retailers including Wal-Mart and Best Buy, who have agreed to accept payments through the bank's technology.
Merchant Customer Exchange retailers ring up more than US$1 trillion of sales per year and boast 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 US retailers and found that two-thirds did not plan to accept Apple Pay this year.
Apple Pay's website lists Best Buy in its "coming soon" section but doesn't mention Wal-Mart.
Chase signed up the Merchant Customer Exchange 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. Chase declined to comment on how much it would cut fees.
Chase expects to market its product heavily in the middle of next year. .
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 and Home Depot suffered from hacking attacks, Smith said. In the 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. There are about 94 million of those cards in circulation 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.