ePayments Week: How big a bite will Apple take?

Is iTunes PayPal on steroids? Also, walled gardens clamp down, and data geeks discuss privacy

Here’s what caught my attention in the payment space this week.

How big a bite will Apple take out of the mobile commerce market?

ePayments WeekWith the consensus growing that Apple will probably introduce contactless payment (using NFC technology) soon — most likely with iPhone 5’s release this summer — we’re all wondering how big a deal that’s going to be. Gartner analyst Avivah Litan, quoted in Computerworld, suspects that it will be hugely disruptive since it could empower Apple to let its 160 million iTunes customers bypass the credit card companies. Currently, iTunes customers link credit cards to their accounts, but Apple could eventually encourage customers to link directly to their bank accounts (as PayPal has been doing), thus cutting the credit card companies out of the fun. Keep in mind, iTunes has about twice as many members as PayPal’s 81 million.

On the other hand, Apple’s move into mobile commerce could create opportunities for banks and credit card companies, according to Andrew Johnson in American Banker. He quotes Richard Doherty, research director of Envisioneering Group: “Apple’s probably someone you want to work with than try to fend off … They do touch tens of millions of Americans, hundreds of millions of people around the world.” The piece points out the dangers of fragmentation, with certain retailers being “handcuffed” to certain phone operating systems, depending on the hardware they buy to handle transactions at the register. (Some of us remember similar warnings to Apple in early iPod/iTunes days about the dangers of going it alone on hardware and digital music standards, suggesting Apple should join in with recording industry standards. We all know how that turned out.)

Apple’s ability to shape a winning platform all on its own is part of the point in Drew Sievers’ blog on MFoundry about Apple’s potential to make a bigger impact than simply enabling phone purchases. Sievers reminds us how refreshing and unique purchases are at Apple’s retail outlets and wonders why they don’t offer their point-of-sale (POS) solution to other retailers. Indeed, other retailers already use the same hardware that the Apple Store does, but the software and, more importantly, the sales training that accompany it are Apple’s. Apple’s stores are famously profitable per square foot. Transferring its whole solution (hardware, software, training, and t-shirted hipsters) to other retailers could be revolutionary, getting clerks out from behind the register and in front of the wavering customer.

The walled gardens dictate coin of the realm

Facebook recently notified its developer community that as of July 1, all social games on Facebook need to include the ability to process payments with Facebook Credits. Facebook promotes Credits as a currency to its game developers on the basis that using them is economical (the system to deploy them is already in place) and it increases usage (perhaps because credits don’t feel like real money to people using them?). But Facebook takes a 30% cut of transactions completed with Facebook Credits, which feels like a serious vig.

Facebook isn’t the only walled garden that’s tightening the rules on what type of coin visitors to the realm can use. The Wall Street Journal reported that in the same week that Apple rejected a digital book application from Sony it tightened the rules on how publishers can collect payment. Journal blogger Russell Adams reported that digital magazine publisher Zinio had received notice that newspaper and magazine apps would need to handle transactions through iTunes rather than an alternate system. Apparently, Zinio already does this, so their system won’t change. But other publishers, like the Journal, may need to change the way they bill for content, with Apple taking a cut.

At the Strata Conference: “Why are consumers comfortable telling us where they are?”

Last week, ahead of Data Privacy Day, Microsoft released results of a survey finding a wide gap between the percentage of consumers who think location services are valuable (94%) and those who are, nonetheless, wary about saying where they are (52%). Even so, that means nearly half of those surveyed weren’t concerned about sharing that data. That seems a big shift from only a few years ago when people were nervous about giving their real name on the Internet. So I asked some of the people at this week’s O’Reilly Strata conference whether they thought there had been a shift in the way consumers view the trade-off of services for privacy.

Alistair Croll, an analyst and partner at Bitcurrent and one of Strata’s co-chairs, suggested that consumers’ decisions to be more comfortable sharing data was a rational economic choice based on the sense that you get more for it than you used to. “Ten years ago, there wasn’t a lot of upside to giving out your personal data,” he said. But sharing that data today returns information that helps you lead a more effective life, whether that’s driving directions or restaurant locations.

Hilary Mason, a computer science professor working with bit.ly, added that there are network effects to this value as more people share their locations: “I get better recommendations, I get ambient awareness of people I haven’t seen in a while. The network effects of being open begin to outweigh the benefits of not being open.”

Some wondered if the missing link here was simply more transparency about where your data was going and who else was using it for what types of purpose. But Tim O’Reilly challenged that notion. “If you had access to that information, what would you do differently? I don’t think it would actually change our behavior,” he said. “I think the thing to do is to figure out what’s bad — what’s creepy, if you will — and then punish it when that happens.” In other words, whether lured or spurred to it, consumers are heading down a path to reveal more and more of their personal data — at least until some “data apocalypse,” as Croll put it, comes along and causes us to rethink our extroversion.

Got news?

News tips and suggestions are always welcome, so please send them along.

If you’re interested in learning more about the payment development space, check out PayPal X DevZone, a collaboration between O’Reilly and PayPal.


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  • Wondering whether the introduction and development of such tightly bound platforms like the facebook games developer platform will stifle the natural evolution of software, if there is such a things.

    There will always be developers working on more standardized software but the The lure of reaching so many customers may redirect efforts which would otherwise be working more cross platform and perhaps create another example of where Facebook is able to steer the web and possibly not in a wholly positive way.

  • Alex Tolley

    Whether Apple (or anyone else) can take bites out of te payments market isn’t all that interesting. Credit card companies and banks can adjust by raising fees.

    The really interesting development will be when a company will offer very low cost banking that is acceptable. Currently retail banks charge an extortionate amount for an account. Companies don’t want to issue salary checks (or cash) anymore but want direct debit, fueling this cash cow.
    Electronic banking really should be almost costless, and the companies that can handle this should be able to completely change the retail banking ecosystem.

  • David Sims


    I guess I think it’s kind of interesting because Apple (maybe uniquely) has a way of redefining markets when it enters them. Even though MP3 players had been around for a few years before the iPod appeared, the combination of the iPod/iTunes store really changed the whole music industry, shifting focus from album-length CDs to individual songs and creating a new, dominant channel for digital music.

    Similarly, although the iPhone wasn’t the first smart phone, its pairing with the simplicity of the App store changed people’s expectations of what their phone could do for them. It also changed the way we think about buying software: instead of a shrink-wrapped $40 product, or a downloaded $15 product, we now expect a $2-$5 product downloaded instantly onto our phone.

    The list goes on: how is the iPad changing the way magazines and newspapers do business?

    This track record makes me very interested in thinking about how Apple might change the way people buy and sell things.

    — Dave

  • Alex Tolley

    @David Sims
    Because Apple has a track record in other domains, doesn’t mean it has anything novel or better to offer in the e-payments arena.

    Think of what you generally buy in the course of a week and how many of those would benefit from a direct purchase from a phone? Grocery stores with lots of products? Would Apple’s store sales approach really benefit retailers with cost effective checkouts? Certainly ease of use would be beneficial, but the problem at self checkout aisles is reading the items, not the payment mechanism. Phone payment would be good at cash operated automats, something that is already done in Japan.

    But suppose I am wrong, what would change? The banks would still do their thing. Credit card companies would still exist, as many purchases need some credit, not cash in a bank account. All you would have is yet another payment system that might have a niche for some products. This looks rather marginal to me.

    Disruptive technologies would change the underlying business model, typically destroying incumbents’ profits and adding value. I don’t see anything that you have written would have this effect, even if any of it happened.

  • Richie

    I agree with Alex’s position on mobile payments. It is hard to see what benefit mobile payments have over credits cards in most circumstances.

    In fact, credit cards have one big advantage: they never run out of batteries. I suspect “sorry I can’t pay you because my phone’s run out of juice” will not wash at the supermarket checkout.