Apple Pay was the talk of the Money20/20 trade show last month, but should it have been? Before Apple Pay can become a dominant payment vehicle, merchants need the ability to accept it (only about 2% of merchant locations can do so today), so it’s far more important to complete that prerequisite.

Why is this transformational? Innovators of any type (payment networks, payment facilitators, digital-wallet providers, loyalty providers, solutions for the automated clearing house, etc.) could obtain instant acceptance at a wide variety of POS locations. It also removes massive barriers to entry, which will create competition across the board.

Under this model, app-store providers can monetize their technology solutions and merchant footprint through a much broader set of software solutions that they would not be able to create on their own. The same is true of software developers. They can monetize their ideas and code in ways that were never before possible.

Last but not least, acquirers and independent sales organizations can monetize their distribution channels across an entirely new set of services (not just payment and POS), without needing to become experts in how merchants run their businesses. And, by creating a wide set of new, marketable services, app stores also reduce the dependency these providers have on the payment networks. The payment networks could soon be just another app within a store that includes thousands of apps. For example, banks or groups of banks could offer payment services directly to merchants via the app stores, cutting out the payment networks altogether.

Apple has proven the app-store model via its consumer app store and devices. Android/Google/Amazon have continued that model and have shown that it is truly scalable. Now merchant app stores are next, and if this takes off everything we know about the payments business could change.

Enablement of NFC payments to accept network-sanctioned solutions such as Apple Pay may cost a merchant from a few hundred to a few million dollars. For the same price, however, merchants could eliminate the need for networks altogether, and that could be priceless.

Digital Transaction, December 8, 2014
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