August 17, 2010

Apple to do payments?

Twan asks whether this is an interesting change in the business model of Apple:

As first reported by Near Field Communications World, a trade publication, Apple recently hired Benjamin Vigier, an expert in the mobile payments industry who works with a technology called near field communication.

According to his LinkedIn profile, Mr. Vigier is now Apple’s product manager for mobile commerce. Before joining Apple he worked with a company called mFoundry, developing mobile payment services for PayPal and Starbucks, and also worked on a project called the mobile wallet.

So are Apple moving into payments? Possibly, but there are several caveats to that. Firstly, Apple keep a closed-shop policy, so we won't ever hear it until it is done. Secondly, given the space and people and so forth, it is probably as likely or more likely that Apple is investigating the NFC space:

Near field communication, or NFC, acts like the standard R.F.I.D. chips that are used to scan passports or credit cards today. When an NFC chip is placed within a short range of an NFC reader, the two gadgets can send small pieces of information back and forth. This can be used to perform simple credit transactions, or could be used to pass information between two gadgets.

This isn’t the first person hired at Apple with knowledge and experience in NFC. According to people familiar with Apple’s recent hiring, who asked not to be identified because they were not authorized to speak for the company, Apple has recently hired other phone engineers with experience and knowledge of NFC and similar mobile technologies.

If one was keen on speculating, the facts to look at might be these:

A barrage of NFC-related Apple patent applications have been published over the last few months. They cover a wide range of potential NFC application areas and include:
  • An NFC-based mobile payments service that lets consumers make payments to merchants and other consumers via a credit or debit card, directly from their bank account or using credit stored in their iTunes account.
  • The 'iPay, iBuy and iCoupons' patents, describing a comprehensive mobile payments, mobile commerce and mobile marketing business based around an NFC-enabled iPhone.
  • Products+, an NFC-based product marketing and promotions application.
  • An airline ticketing and boarding pass application that describes an unmanned, automated airport ticketing and baggage counter kiosk and introduces the concept of an automated security checking process where users of the iTravel app could process themselves through the security clearance system and check themselves in at the boarding gate.
  • The Grab & Go patent, designed to make it easy for customers to transfer files between devices such as the Mac, iPhone and Apple TV.
  • An NFC-enabled iPod, games controller, TV and iPhone.
  • An NFC-based concert, entertainment and sports venue ticketing application that includes exclusive bonus features for users of Apple's service.

Which adds further weight to a thrust into all sorts of NFC areas. Personally, I'd speculate that lots of ideas are being researched, and infrastructure is being built internally. Meanwhile, the leading conceptual ideas are being patented (FWIW), but this doesn't imply those ideas will happen. It's simply a land-grab based on giving the company substantial room to manouver when something does roll out.

Those are more expansive views, from the outside. From a more directed approach, there are also pluses and minuses for payments. Here's some analysis:

Firstly, it is a long-standing and well-known plea that we want payments on our mobiles, much more than we want them on our desktops. This is practically dogma in the payments sector.

Secondly, and to counterbalance that, the reason we want it on our mobile/cell/handy/pocket platform is only partly the enormous convenience factor of pocketable money. It's also because there is a presumption that a pocket platform is secure.

Of course, this is a relative statement, as is all talk of security. It's more secure than the average desktop (be it Windows, Mac or Linux) ... but a lot of that is because of the multi-application approach adopted by ones desktop ... and the iPocket stuff from Apple is all multi-application! So the question is, how secure is the iPhone for this sort of thing?

Not very. And not enough for payments, or not enough for hard payments. Maybe enough for soft payments, ones that are reversible when found heading to strange places and strange people. Or one-way payments.

Thirdly, does Apple want to play at being a bank? Surely not .. recall the response that Microsoft got in the mid 1990s when Bill Gates said something like "we only want to take a penny out of each dollar ..." The banks moved swiftly to close that one out.

But times have changed since then, several things have happened. The explosion of payment systems didn't quite happen. Europe's conceptual lead faded away before the fearmongering of banks, which unintended consequence (fading away, not fearmongering) finally caused the regulators to finally rewrite the eMoney directive in favour of experimental approaches to money. And, coincidentally, open up the "real" payments market by means of the PSD, which Dave mentions came into force November last year.

Meanwhile, during Europe's lost two decades, Paypal did happen, and the results were unimpressive in terms of competition policy -- fees on order of 10 times higher than open competitors! Also, the reputation of banks right now is pretty weak, due to their basic failure of governance in the financial crisis, and the seismic shifts in banking are fundamentally moving against them if they want to claim ownership of all money business.

Meanwhile, payments did emerge in the games sector over the last decade. WoW, SL, etc, many tried and many more or less succeeded to create "internal" payment mechanisms to do what payments are supposed to do, provide value accounting for trades between people. From there, it spread across to the social network sector.

The model then that has emerged is that if you do a payments business within your community, this is "ok" ... but outside, opening it to the public, that's not "ok," that's going to face stiff competition from the grumblers. Whereas, inside payments can be snobbishly ignored as game play, not serious.

Is Apple a social network? A game? Yes, it can be seen that way. Is this still a good idea? ApplePay? iBites? That depends on who you ask. If it's just the techheads who built great apps like the ones Apple is famous for, then no, it's too far from core business. Payments is not just technical business and great UIs.

If however Apple can assemble a diverse team, along the lines of the FC7 thesis, then Apple has some of the breadth to support that team.

In a way that Microsoft hasn't and google didn't. Cautiously, I'd say Apple is well-placed to do this, and can do it. If it helps any, I can suggest that doing payments is a lot of fun, a great challenge, and even if you fail, it's experience that will stand good for the future. Good luck, guys.

Posted by iang at August 17, 2010 07:44 PM | TrackBack

"Europe's conceptual lead faded away before the fearmongering of banks, causing them to rewrite the eMoney directive in favour of experimental approaches to money (and open up the "real" payments market)."

What do you mean by this Ian? I agree that the e-money directive was torpedoed by banks and therefore didn't lead to real change, but on the other hand I think it is also fair to say that the PSD, which only came into force last November, is already having an impact.

Posted by: Dave Birch at August 18, 2010 03:23 AM

Hi Dave,
I rewrote that paragraph to be more clear. I was trying not to spend too much time on the sad old history, but I guess I compressed it into a mush.

Posted by: Iang at August 24, 2010 08:13 AM
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