Find articles from my Blog Archive:

Monday, 8 September 2014

Speculating on an Apple Mobile Payment scheme

For those that have been hiding under a stone, tomorrow (Tuesday) is the announcement date for the next iPhone. But it's not the iPhone that interests me (well, ok, the new iPhone interests me a little). There's something much more fascinating that we're going to find out.

Apple are heavily rumoured to be launching a new mobile payments service as part of the announcement. VISA, MasterCard, American Express and a variety of American banks are heavily hinted to have already signed up. As part of this service, they are said to have agreed to a 0.25% reduction in the ‘interchange rate', or transaction processing fee. This is huge, not only because this kind of discount is unprecedented.

What fascinates me is what happens to this 0.25%, because the answer has big implications for business models, profit and take-up.


Retailer discounts

It might be that the 0.25% is a reduction in the fees that retailers pay for accepting a card transaction. That would be significant because, for retailers operating on often very slim margins, it would mean they were heavily incented to support and prefer iPhone payment. This means they might easily be persuaded to make any necessary PoS technology upgrades. They are also likely to publicise their acceptance of iPhone payments. This could have big implications for uptake - something which all competitors have singularly failed in. Very rapidly, we might see Apple becoming the leading mobile payments supplier.


Increased profit

Alternatively, Apple might keep the 0.25% for themselves. What might that mean?

Well, it might lead to a dramatic improvement in Apple's profit margin. A company taking 0.25% of retail transactions is a profit machine like no other. Stock prices would possibly soar.



Alternatively, Apple might keep its profit margin static. It's gross profit margin has been consistenly in the mid-30% range over many years, so this is clearly a margin they feel comfortable with. It's not as if Apple is a company in need of cash; it seems to have more of a problem spending the money it already has.

Instead, Apple might choose to use the 0.25% to subsidise the purchase price of iPhones. Cost is rapidly becoming the defining competitive advantage that competing Andoid handsets have over the iPhone. If a payments-subsidised iPhone were free or discounted, this might have a huge impact on Apple's market share.



I have no inside information on what is going on. But, it strikes me that a company playing with 0.25% of a large number of retail payments has got to be doing something significant from a business model perspective.

Tomorrow evening (UK time) I will be looking for hints (or even explicit statements) about the funding and business model behind any new payments service. This might turn out to be much more interesting than any shiny new phones (or even iWatches).

I might be wrong. There might be other dynamics at play here that I'm unaware of. I'm only guessing and I'm fallible.



No comments :

Post a Comment