If rumors are to be believed, and I think they are, Apple’s upcoming iPhone event on 9/9 will finally bring the company into the world of consumer payments. It’s not all that surprising really. Apple has a tendency to let markets mature a bit and then totally disrupt them by reinventing the consumer experience. The Mac wasn’t the first PC, the iPod wasn’t the first music player, the iPhone wasn’t the first smartphone and the iWhateverIt’sCalled won’t be the first digital wallet. So what’s interesting about the highly likely rumor is not that the day of Apple payments is upon us but, rather, how they will likely welcome in the payment solution.
Payments isn’t, and likely never will be, Apple’s core business. They’re busy selling computers, phones, pads and, if other rumors are to be believed, watches. Even Apple’s first foray into transaction type revenue, the wildly successful App Store, accounted for less than 10% of the company’s revenue in the second quarter of this year. The only business units smaller: iPod and Accessories. As such, don’t expect them to act rationally as they enter the payments market.
Being that 1) Apple has 800 million cards on file, 2) Apple has nothing to lose by entering payments – even $1 in revenue out of the category is infinitely more than they make today, and 3) that Apple needs both consumer and merchant adoption to grow the category, expect strange things to happen.
The most obvious move in my mind is a move towards extremely low interchange. Interchange-based businesses have been on a slippery slope over the past 5 years and Amazon’s latest announcement is no help. It’s a war for merchant adoption and the surest way to a merchant’s heart (their POS) is by saving them money. If Amazon is willing to throw their cash ($8B) at merchant adoption by losing money on each transaction, Apple should be willing to do so 5x over given they have $38B of cash sitting in their bank account. Expect Apple to try and buy their way into retail adoption.The less obvious move is how they get all those iTunes account holders they have to use their phones at POS. Changing consumer behavior, especially one that has been commonplace for decades, isn’t easy and to get real scale on the payments side Apple will have to get more than just Apple fanboys using it. On this front, expect to see some commonplace convenience moves – like automatic electronic receipts and frictionless check-out – but I wouldn’t be surprised to see Apple move more aggressively to motivate the switch. It may not happen right away, since where Apple goes fanboys will follow regardless, but over time expect consumer rewards to play part of the Apple payment in a move to get more adoption. Coupons? Maybe. Loyalty program? Possibly. App store discounts? Perhaps. It’s unclear what Apple will do jumpstart their payments business but regardless of how they enter, expect them to make a splash.
Matt is a General Partner at Flybridge Capital Partners whose investment interests and experience broadly cover companies and technologies across the information technology sector including hardware, financial technology and education technology. He recently moved to New York to help lead the firm’s investment initiatives there as he detailed in his blog posts, “The State of NYC Investing: The story of why a Boston VC moved his wife and dog to NYC” and ” The New and Improved State of NYC Investing: What a difference a year makes.”