Turns out my rumor was well founded as Bloomberg verified this weekend. As such I thought I would give my view on what Apple will do with the asset.
The broad theme.. Specialized Hardware ALWAYS gives way to software.
Quick Take
- Apple will make accepting cards as easy as using a card. They are likely to take on the role of a platform for acceptance. Acceptance requires tightly controlled and certified software and hardware. Thus it is also likely Apple will develop an app ecosystem for acceptance that expands on the “controlled” app with many 3rd party applications, and will also enable a physical acceptance device (ie dongle) to support acceptance of any card.
- To enable card acceptance on mobile devices, the acceptance infrastructure must work within Secure Enclave (iOS) or the Secure Element (Andriod).
- Apple does not publish, support or enable any third party operation in the enclave. Thus any card acceptance platform must be “inside the tent” with Apple’s software infrastructure. This is why Mobeewave was focused on Android and Samsung (openness).
- For card acceptance on IOS, in addition to enclave integration, the acceptance platform must be certified by both networks (V, MA, Amex, CUP, …) AND the acquirers (FIS, FISV, GPN, …etc). See Trust Networks.
- My belief is that Mobeewave will be the equivalent of a NFC/EMV certified “toll collector” for interaction with the enclave. Apple will enable MANY 3rd party applications to build around their platform. This approach directly attack’s square’s vision of merchant ecosystem centered around their hardware.
- Apple currently takes 15bps of all Apple Pay transactions (in US) per issuer agreement. It is likely to also seek a similar transaction fee from acquirers for acceptance. Note: processor take is 20-30bps vs 220 bps for issuer.
- Apple’s goal is to create great customer experiences, particularly for device to device payment (see blog). Enabling 100s of “app creators” to build value from this central service could be a $50-100B revenue opportunity if Apple is able to capture 10% of US market. The likely initial focus is small business.
- Key hurdles are on areas outside of Apple’s control: 1) Device/Software certification, 2) Acquirer/Processor automation of new merchant accounts.
- Estimated timeline? Testing in 5-9 months, Certification in 12-18mo, Rollout in 18-24mo
- Impacts
- Positive. Visa/MA merchant network expansion + Cash Replacement. Acquirers/Processors, new platform provider (with TBD cost). Other Fintech’s in this space: Poynt, Toast, MagicCube.
- Negative. Square.
Example – Stripe or Shopify expansion into the POS. Apple’s approach here would enable Stripe or Shopify to deliver omni channel and expand into the POS game with minimal additional investment. Either would be able to deliver integrated payment acceptance through IOS devices and create apps that are centered around their own unique platforms. Apple’s value? Solve device certification and merchant account creation – globally.
A more detailed blog on topic will be coming out next week. I’m a tad slammed today.