Apple Pay’s Credit Card Reliance

Apple Pay

Juan Pablo Vazques has an article in Harvard Business Review about how Apple Pay’s reliance upon credit cards is ultimately iterative, but not disruptive. He writes:

Apple executives could have negotiated with retail banks, just as it did with the recording labels, to launch Apple Pay. If it had, Apple Pay would have been a substitute for credit cards, and would truly be disruptive to the credit card industry. Instead, Apple negotiated with the credit card companies, which is why you need to introduce your credit card number, instead of your bank account number, to configure the application. That merely positions Apple Pay at the end of the existing credit distribution value chain, as a reseller for the credit card companies.

Vazques draws the comparison between the inception of iTunes – wherein Apple inked aggressive deals with music labels – and the potential for it to have engineered comparable deals with banks. The thinking is, Apple could have cut out credit card companies entirely, and just engineered a system that withdrew funds from a consumer’s bank account and deposited it into the merchant’s, taking a cut smaller than Visa or American Express.

He is, in theory, correct. Apple is one of the few companies whose customers are ubiquitous, loyal, and tech-savvy enough to have conceivably gone through the steps of linking their checking account to their Apple Pay account (the others are Amazon, Google, and maybe Facebook). But there are a few roadblocks that rightfully prevented Apple from taking that leap:

1. Record labels and credit card companies aren’t in the same strategic positions. When Apple approached record companies in the early-00s, the labels were desperate to combat the effects of file-sharing and piracy. And not unreasonably. Single-song downloads presented far more convenience than piracy, and far less cost than a full CD. Credit card companies are not in the same position. Both Visa and American Express have had years of solid growth, and the legitimate cybersecurity threats they face are not existential in the same way piracy was a mortal threat to the music industry. Apple may have been able to use its massive user base as clout, but it’s not nearly as certain a case as it was fifteen years ago.

2. Fraud, fraud, fraud. The way things stand now, credit card companies absorb the cost of illegitimate charges on users’ cards. Unless Apple Pay were completely airtight, Apple would not enter the business of shouldering consumers’ risk, and doesn’t have the technical infrastructure to spot unusual spending, or the procedural means of chasing down fraudsters the way Visa and Amex have been doing for fifty years. The excellent podcast Exponent covers this aspect in depth.

3. Apple’s not in the value game. Cutting out credit card companies might save merchants – and eventually, customers – 5% or so on transactions. It would take a considerable amount of risk, and capital, for Apple to see meaningful revenue on Apple Pay transactions. And Apple doesn’t do low margin. If Apple were getting into the transaction processing game, it would likely want a higher percentage than retailers would be willing to concede.

I agree with Vasquez’s fundamental premise, but not his castigation of Cupertino. In the literal sense, Apple missed an opportunity to reimagine the mechanics behind mobile payments. But I think that Apple is a more conservative entrant to the mobile payments space, and that it is rightfully hesitant to expand from consumer electronics – and now, fashion – to financial services. It is eminently possible that, down the line, Apple will attempt to squeeze Visa and American Express out of the value chain. But I think that as long as fraud is a legitimate concern, Apple will sooner play it safe than play it cheap.

Apple Pay’s Credit Card Reliance

Reviewing the New Macbook

Wired has a solid review of the new Macbook. Their conclusion is spot on:

Much like that first Air, the new MacBook is for the future. It’s a vision of our next computer, the one we’ll buy when our Airs or ThinkPads can’t keep up anymore. The MacBook is a work in progress: The processor and the battery will improve, and the price will drop. It won’t take long. The future’s getting here faster than you think.

Reviewing the New Macbook


tidal 2 jpeg

Jay-Z recently revealed his plans for Tidal, a high-fidelity music-streaming service. The key differentiators are:

  • Tidal will have no free tier
  • Tidal will have a $10/mo compressed quality option, and a $20 CD-quality option
  • Tidal will offer equity stakes in the company to artists

I’m a little skeptical that Tidal will succeed. Spotify and Pandora are pretty dominant in the streaming category, and iTunes and Amazon seem to have a lock on the download space. With every passing month, Apple’s Beats Music service seems a little less likely to succeed, although I wouldn’t rule them out.

To me, Tidal feels like a more relevant, more millenial version of Neil Young’s Pono Music Player, another artist-supported offering that touts its premium sound. But Pono seems to have proved a Quixotic quest, since (a) the sound seems not to have been “worth it” (b) very few people would carry around a second, dedicated device and (c) most importantly, Pono’s high fidelity catalog was very limited.

I would argue that Tidal will stumble into some of these same pitfalls: (a) I don’t think enough consumers will pony up $20 for premium sound, but (b) the service will obviously be app-based, mitigating the need for a second device, and (c) I think the catalog will be larger than Pono’s but smaller than any of the other streaming or download incumbents.

There is, of course, the Jay-Z halo. The initial launch announced that his, and Beyonce’s albums will make the grade, as will offerings from Nicki Minaj, Jack White, Daft Punk, and others. And although I do think that the equity proposition will be tempting for artists, I think that the value proposition is iffy for fans. Unless it were a zero-sum game, with artists on one service or the other, but not both, it’s hard to see Tidal taking users from Spotify’s free tier, let alone bump them up to the $20/mo premium level, which is likely what the service needs to be viable in the long run.

But I’d be only half-joking to say that, if Taylor Swift signs on, Tidal could spell trouble for other players.


Facebook Messenger: The Trojan Horse


In 2013, Facebook tried and failed to create its own phone.

Now Facebook has come back with a more considered vengeance, and announced today at F8, its developer conference, the inception of Messenger Platform, which will play nice with third party apps, and ultimately, I believe, achieve some of the results Facebook sought back in 2013.

Facebook seems to have taken two distinct paths with its platform:

1. It has actively unbundled apps from the “big blue F.” Acquisitions like Instagram and Whatsapp have stayed mercifully separate from Facebook’s primary service.

2. It has developed Messenger into an ecosystem unto itself, first by unbundling it from the primary Facebook app, and then by subsequently integrating payments, and now, other apps, into the service itself. This strategy borrows very heavily from international competitors like Line and Kik, which have offered banking and related services as part of their messaging apps for quite a while.

Facebook’s strategy is predicated upon slowly gobbling up the functionality of other standalone apps. Consider its new “Messenger for Business” feature, which allows firms like Everlane, USPS, or Zulily to communicate directly with customers. This feature could have been a standalone app by a different developer, but Facebook, with its unparalleled user base, is the perfect partner for retailers – who can presumably get more data – and for buyers, who’ll get quicker customer service on an app they already have installed.

And although it can’t own the device ecosystem, it’s slowly sliding a blue, chat-bubble shaped horse into Apple and Google’s camp.

Facebook Messenger: The Trojan Horse

Facebook Messenger, Now with Payments

paymentsFacebook recently announced the rollout of a payments service which will be embedded within its popular Messenger app, leveraging its already-vast user base. This move was obviously a long time in coming, and it follows on the heels of Google Wallet, Apple Pay, and, most similarly, Snapchat’s Snapcash feature. I am certain that, down the line, Facebook will use this new feature to more smoothly facilitate birthday gifts or online marketplaces.

The issue with most payment services is the “opt-in” nature. I’ve tried to pay – or be paid – by friends for various expenses, and the most common issue would be that I didn’t have Venmo, they didn’t have PayPal, or, in a commercial setting, that a vendor might not have an NFC reader for Google Wallet or Apple Pay.

Facebook’s ubiquity – both nationally and globally – means that there is a pretty minimal barrier to purchase or payment for the consumer, since he or she already trusts Facebook, and since, critically, no additional app is necessary. In contrast, Venmo is obviously less well-known than Facebook, and PayPal – despite its name recognition – still requires a new account. And both services require an additional app. By piggybacking on its Messenger platform, Facebook has managed to effortlessly opt into its users devices, without more than an update. Additionally, Facebook payments will utilize its customers’ debit – not credit – cards, which will permit lower costs per transaction.

And ultimately, anything that allows my friends to more easily send me Starbucks giftcards on my birthday is just fine by me.

Facebook Messenger, Now with Payments