Apple's Next Money Maker

What kind of company is Apple? A computer manufacturer? A software developer? A consumer electronics company? A retailer? In order to answer that question, you first need to ask, "as of when" because Apple continues to reinvent itself. I guess the more important question is, what kind of company will Apple be? That's where things get interesting.

You thought QuickTime was cool until you saw iTunes, and you thought the iPod was revolutionary until you saw the iPhone. While those products have produced a steady stream of revenue for Apple, its a drop in the bucket compared to the potential of capturing fees on payments. Apple's payment infrastructure inside of iTunes is waiting to be unleashed. Step one was taking payments for songs, movies, and books; step two is enabling in-app micro-payments; and step three is offering payments inside of retail stores.

But Apple is not in this race alone. Google and PayPal are trying to do the same thing, and the banks aren't sitting still either. Everyone is trying to figure out the best way to allow consumers to use their mobile phones to make payments, and possibly replace cash altogether. The obvious technology is NFC, but it will require a large-scale roll-out of NFC readers to stores, which will be expensive. Apple needs to partner with one or two large chains (like Target or Best Buy) in addition to the Apple Stores to get the ball rolling. Once people are introduced to the convenience of NFC payments via their iTunes account, they will push the rest of the industry forward.

Eventually Apple will divorce itself from the underlying credit cards associated with iTunes accounts and introduce a closed-loop payment system that debits directly from consumer bank accounts. The money saved from avoiding interchange fees will go to Apple's bottom line and they will become a full-fledged payment processor.

In five years Apple could be making the bulk of its revenue from payment fees, and that's a long way from Breakout.


"Eventually Apple will divorce itself from the underlying credit cards associated with iTunes accounts and introduce a closed-loop payment system that debits directly from consumer bank accounts."

But, but, but.....the advantage of going thru credit card payments or at least via the visa/mastercard network is the ease of payment for the end user. If this were replaceable with direct bank account debits, would not big retailers have done that already (and benefit from similar savings)? Why wait for a mobile payment solution to do so?

Also, what % of transactions are likely to be direct bank debits to realize in substantial savings?

-Shankar V

Posted by Shankar on January 26, 2011 at 05:51 PM PST #

Other payment systems like PayPal, FaceCash and Cimbal are trying to help retailers do exactly that -- skip the expensive credit card networks. Retailers don't do it themselves because of the complications with banking rules.

Posted by David Dorf on January 26, 2011 at 09:14 PM PST #

Another question on that very point. Why would the end user want to switch from a credit card, to something that effectively is the same as a cash payment. The credit cards offer benefits to the end user, like cash backs and promotional discounts, membership discouts, credit card points earning etc. Unless there is a situation where no other mode of payment option is available to the user, credit card will be the preferred payment mode. So why will the user switch without complaining?

Posted by Farhat on February 10, 2011 at 08:13 PM PST #

Farhat, I don't think think NFC can replace a single credit card. It will only be successful if it replaces multiple credit cards, loyalty cards, and facilitates in-store interactions like with smart-posters. NFC from non-banks will offer cheaper fees, while NFC from banks will offer similar benefits as credit cards do today. Don't think of NFC replacing credit cards, debit, or cash. Rather, think of NFC replacing mag-stripe cards.

Posted by David Dorf on February 10, 2011 at 09:27 PM PST #

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