Wednesday, June 13, 2012
When you finally grasp the magnitude of Apple’s play in the payments business, it becomes clear that potential competitors will be shunned from the platform. As Daniel Terdiman suggests in CNET, "New Apple features may leave fresh app roadkill in their wake as Apple is likely to undercut several existing third-party applications." With the introduction of Passbook, Apple has launched mobile payments on iOS and competing virtual payment systems, including bitcoin, must be terminated.
Roadkill in payment apps has already occurred and they were never given the chance to be made irrelevant. The decentralized digital currency bitcoin has had two functioning payment applications on the Apple App Store -- Blockchain Wallet and BitPak, both of which have since been unceremoniously evicted. Several other bitcoin-related apps currently appear in the store but they don't seem to be restricted by Apple since they don't enable send/receive transaction capability as the wallets do.
In April, I covered the extraordinary Blockchain Wallet product in Forbes only to see the app abruptly removed from the store in less than two weeks. The explanation given by Apple was that "apps must comply with all legal requirements in any location where they are made available to users." Apple further stated, "it is the developer's obligation to understand and conform to all local laws" and the developer was referred to the legal department for an exact explanation of which law it violates. Clearly, they will not be able to cite a law as no laws prohibiting bitcoin currently exist in any jurisdiction. Fortunately, the wallet app is still available here at the Cydia Repository for jailbroken iPhones.
At about the same time, BitPak received an electronic notification that the first bitcoin wallet for iOS had also been removed from the Apple App Store again citing similar legal reasons. Sadly, BitPak's developer says that he would have continued BitPak development had the app stayed in the store and that he had been working on a revision which would have put the blockchain in the cloud for greater efficiency.
Basically, it boils down to this. Apple realizes that, with their current installed base of 400 million active credit card details, the mobile payments war at the point of sale is largely theirs to lose. Why complicate the strategy by offering competing currencies and competing systems on the iPhone platform? If Apple can facilitate proprietary mobile payments successfully, it can undoubtedly spur demand for more Apple products.
Even though bitcoin payment apps could boost sales of Apple mobile hardware, bitcoin poses a more specific threat because, as its own independent, nonpolitical currency, the third-party legacy players (i.e., VISA, Mastercard, banks) can be bypassed which would disrupt Apple’s partnerships with dongle players like Square and iZettle. Bitcoin payment apps have already demonstrated the effectiveness of QR codes and scanning at the point of sale which is obviously Apple’s bridge strategy prior to full Near Field Communication (NFC) deployment.
According to Caribou Honig, a partner with QED Investors:
"The pending battle for these revenue streams will be the stuff of legends. Never have so many corporate giants been lined up for their piece of the pie. Let’s start with Apple. My thesis is that they are the only company capable of catalyzing adoption of tap-to-pay on smartphones. But which prize do they seek?
I predict they will take no interchange revenue and no fees. They will avoid such barriers to adoption. Advertising revenue will be negligible. Apple’s prize is simply to boost sales of high margin iPhones. The mobile wallet will be a key selling feature and create yet another means to lock people into the iOS platform."Bitcoin is not the only virtual currency target. The founders of micro-payment service Flattr say that they are the victims of an 'app dictatorship' after Apple rejected the podcatcher Instacast based on its integration with Flattr. Apple cited App Store Review Guidelines 21.2 which states that "the collection of donations must be done via a web site in Safari or an SMS." A Bitcoin Forum member then surmised: "Have the app create the script and route that out through using SMS. I wonder what the difference is though between an app that uses Flattr and an app that uses PayPal, as far as being used to transfer funds from one person to another."
PayPal is a unique and interesting exception. Having been in the App Store since the very beginning, PayPal has the volume and clout to the point of where rejecting it would harm Apple more than PayPal. Also, PayPal holds consumer accounts and processes only national currencies so they are more like a bank and card company combined. However, Apple still hugely regulates what can be done via PayPal. While consumers can send payments to each other and link PayPal to fund their iTunes account, developers selling in the App Store are forbidden in accepting PayPal directly due to Apple’s 30% cut.
Bitcoin might be stymied by Apple for now, but I predict that even the well known PayPal app will join the growing list of roadkill if Apple decides to enter person-to-person payments.
For further reading:
"Does Apple’s Passbook App Make Cents?", Tricia Duryee, June 16, 2012
"Passbook Is the Beginning of Mobile Payments On iOS", Brent Rose, Gizmodo, June 11, 2012
"Understanding Bitcoin", , Al Jazeera, June 9, 2012
"Apple’s mobile payment plans and its vision for retail", The MultiChannel Retailer, June 2012
"A wealth of wallets", The Economist, May 19, 2012