Dance with the Devil
Apple, payments and the end of credit cards
*Update at 6:15pm at the bottom in light of Walgreens/CVS & Apple News
It truly amuses me to see the iWatch getting far more coverage than the upcoming Apple payments coup. With the recent news that Apple has struck deals with a group of leading banks (and procured discounts from them) and the major credit card companies, it’s clear that the iWallet (or whatever it will be called) is happening, and it’s happening in a big way. I was astonished when I heard that both the banks and the credit cards were involved, because when combined with the rumors of NFC in the iPhone, iWatch, or both, this starts to smell a lot more like a global payments system than a useful feature of iOS. When naming this post, I originally used the phrase “mobile payments” and then realized how obviously that missed the point. This is just about payments, period. Time’s article “Why Only Apple Has What it Takes To Disrupt Our Wallet” reminds us that these awesome developments in mobile payments have been —up until this point — junior partners to big-boy payments (closest thus far has been PayPal). Cupertino has done it before (smartphones, tablets) and they probably will do it again. This is just the first time that Apple is really going to distort reality without Jobs.
Some of this may be their impeccable timing, and their convenient tactic of always getting last-mover advantage that somehow seems like it was first-mover advantage in retrospect. But chiefly, we are here because true mobile-enabled payments is not a technology problem, it is an anthropology problem. It requires a thoughtful bundler to bring order to the chaos that has reigned early in this market’s life cycle. Apple will likely not be the payment monopoly – potentially Google, Amazon, or an upstart like Dwolla or Venmo or Square could position themselves to get a big chunk of it eventually – but they will be the ones to teach us the UI, metaphors, and framing that we use as a society to organize around a payment system. We’ve had NFC for years, and in reality Apple seems to have been treating those days as a free, extended beta test of the technology. If anyone is going to get NFC into the real world, it will be Apple, while at the same time leveraging their advantage of being able to offer software-based payment integrations (or online shopping at first) in parallel. It is not hard to imagine some sort of Passbook integration in the future with payments providers as diverse as Dwolla, Chain, Bank of America, Discover Card and Western Union.
But surely the executives at Visa, MasterCard and American Express are familiar with how things turned out for the record companies after they fled Napster’s wrath to the shade of iTunes. The obvious question is this: what the hell are they thinking? Why would they participate in magnifying the unparalleled advantage that Apple’s platform commands when, by some counts, upwards of 850 million credit cards are on file at iTunes? Apple could easily commoditize the payment provider as a category, all the while bolstering their demand-side economies of scale. With things like Dwolla and Bitcoin in particular, Apple has a ready-made substitute for credit cards once it establishes its platform of platforms. Money is really just information, and while the credit card companies have built one of the first great shrines to Metcalfe’s law (network effects), in a world being eaten by software, you had better build a big enough moat too.
There are some obvious short term boons here for the credit cards. If Apple passbook containing your Visa card causes you to use Visa more often (say, as opposed to cash), and its convenience maybe even spurs you to spend more online period, you could see some real growth in $$s processed (for a while at least). Maybe Amex can stake a claim as a concierge quality, high-end Passbook app instead of a physical card. Surely the brand is worth something in translation. But then they are simply playing on the home field of Venmo, Paypal, and a host of other payment services at every level of the stack, and who have access to the exact same phonebook graph and preferred identity layers (Facebook, Dropbox, Google etc). Do you really want to bet on a credit card company in an extended hackathon against a payment startup?
So, I’m actually not sure who the devil I’m referring to in the title is. But one way or another we’ll find out – a lot sooner than I expected.
According to Re/code, Apple has inked deals with still more partners for its payment system (believed to be NFC based). By apparently signing up Walgreens and CVS, Apple has paved the way for similar bilateral deals with large chains, and we can begin to see a coherent Apple strategy emerge. By training users to trust this payment mechanism at certain key places, Apple defines the interaction in classic Apple fashion and begins to slowly guide users into the future. Expect to see more large retailers and restaurants getting recruited into Apple’s payment network. This is the strategy that should really scare the credit card companies. One morning we may wake up and find that the big chains all “take iPhone.”
It also dawned on me what the point of the iWatch might actually be. If the iPhone 6 is technically the “first” iDevice with NFC, might iWatch be the cheaper NFC wallet option during the transition to NFC in the iPhone install base? Apple’s crude attempt at backwards compatibility? Perhaps with an old iPhone paired to an iWatch, you too can lose the plastic for iWallet.