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What Apple Pay Could Mean for In-App Purchases

69 points by jamesmoss 12y ago

PinguTS 12y ago
He is wrong. In fact Apple charges the banks: http://www.bloomberg.com/news/2014-09-10/apple-said-to-reap-fees-from-banks-in-new-payment-system.html http://www.bloomberg.com/news/2014-09-10/apple-said-to-reap-... Which makes sense, when you read the technical details published earlier today here on HN: http://clover-developers.blogspot.de/2014/09/apple-pay.html http://clover-developers.blogspot.de/2014/09/apple-pay.html
- markonen 12y ago
  Missed this completely, thanks! Updated the article.
- Justsignedup 12y ago
  Banks make money from credit cards by * charging a % from each transaction * late fees * interest on balances This assumes banks make less money on transaction fees than they do on the other two when coupled with the potential for fraud... An interesting assumption...
  - ssharp 12y ago
    Is this how it works? My assumption was that Mastercard, Visa, American Express, and Discover were the ones that made the % of each transaction and then the issuing banks were the ones that made the money from fees and interest.
    - nthj 12y ago
      It's my understanding banks also charge a transaction fee (may be flat per-transaction rather than a percentage.) (Source: I work for an online ticketing company, so we deal with these types of things.)
    - dangrossman 12y ago
      Most of the fees end up back with the card-issuing banks. That's how they pay for the rewards programs, and why the fees are higher for rewards cards than other types.
- r00fus 12y ago
  > He is wrong. In fact Apple charges the banks The article you're linking to is not definitive. The source is anonymous and not confirmed: "Under deals reached with banks individually, Cupertino, California-based Apple will collect a fee for each transaction, said one of the people, who requested anonymity because terms aren’t public."
dognotdog 12y ago
The Appstore revenue is dwarfed by hardware sales, with all of Appstore/iTunes revenue being less than 10% of iOS hardware sales. Apple certainly doesn't NEED the 30%, but it's very doubtful they'd reduce it.
- atmosx 12y ago
  Apple's Gross Profit[1], as of June 2014 is about $76B. A 10% cut translates to $7.6B per year (as of today, probably more in the future). It's a huge load if you ask me. [1] http://www.wikinvest.com/stock/Apple_(AAPL)/Data/Gross_Profit http://www.wikinvest.com/stock/Apple_(AAPL)/Data/Gross_Profi...
- frogpelt 12y ago
  I would guess that the profit margin on IAP is higher than on hardware. How much does it cost to maintain the servers and infrastructure associated with IAP vs. the cost of building hardware?
zura 12y ago
Anyone can point to the list of supported merchant/developer countries for Apple Pay? Or is there any plans to add new countries to apple appstore? It is 2014 and I'm still unable to publish [any] apps on Apple app store and paid apps on Google Play... I'm based in Georgia, Europe.
- amirmc 12y ago
  Visit the iPhone 6 page and scroll down [1]. There's a list of participating banks and merchants (currently US only). https://www.apple.com/iphone-6/apple-pay/ https://www.apple.com/iphone-6/apple-pay/
dirtyaura 12y ago
It's an interesting change for SaaS services too. For example, just a few days ago I paid for Evernote Yearly subscription through iAPs, which meant that Apple took a 30% percent cut of that $45. If Apple allows Apple Pay for SaaS subscriptions, what that will mean for iAP economy in general? Will Supercell implement a subscription service for Clash of Clans with a monthly amount of virtual currency?
- PinguTS 12y ago
  But still there is the question, did Apple took all those? I would say, it depends. World wide, you can buy those prepaid iTunes cards to fill up your account. I do that regularly. I do this, because at least here in Germany from time to time the merchants have discounts of 25% to 30% on those cards. Thats no shady merchant, but the big brick and mortar chains. That let me assume, that Apple is selling those cards to those merchants with about this discount.
personZ 12y ago
"The 30% IAP cut equals billions of dollars in yearly revenue. But being in this commission business is not in Apple’s DNA." I would say it is entirely in Apple's DNA. Apple has aggressively tried to inject themselves between sellers and buyers in multiple markets, even where their value add is unwanted and unnecessary. And I don't fault them at all for that. They're a business and they're doing what businesses do, growing revenue. Trying to get a pound of flesh from the payment industry process is something many players are aggressively trying to do right now, and Apple is no exception. And of course in the end all fees end up being borne by consumers. One fallacy that many make in such discussions is the argument that Apple makes so much from hardware they really don't care about the smaller parts of their business, yet they have shown that they care very much about it. Don't think of Apple (or Google, or Microsoft, or any other growth company) as a $N billion dollar company -- every day they are, to the people fighting for more market, a $0 company, because all that matters to the tiers and people involved is $(M-N) tomorrow.
- markonen 12y ago
  One reason why I suspect Apple could be different in this regard is the fact that they famously have only a single P&L. So whereas in other companies divisions and the SVPs running them would jealously guard every piece of revenue that was rightfully theirs, Apple as an organization could be better equipped to avoid that — if deemed beneficial to the overall business.
- ThomPete 12y ago
  The 30% as far as I understand is roughly covering the cost of running the app store. I.e. huge revenue but not really much profit.
  - personZ 12y ago
    I would be really surprised by that. The gross 30%, presuming it always applied, would be about $6 billion per year, which would be an enormously expensive online store. Of course Apple's cut is often lower than 30% -- I can frequently buy $100 iTunes cards at Costco for $80, for instance, and then add that the retailer surely gets a cut as well. Nonetheless, the iTunes empire is currently doing almost $20B of business a year, with a $6B cut. The NFL, in contrast -- for all its seeming enormity and influence -- is about a $8B business, gross.
hackerboos 12y ago
So companies[1] that had to previously shut down because of the 30% can return? [1] - http://www.cnet.com/uk/news/as-iflow-reader-app-closes-harsh-words-for-apple/ http://www.cnet.com/uk/news/as-iflow-reader-app-closes-harsh...
- ceejayoz 12y ago
  Almost certainly not. Credit cards have always been a usable payment method, Apple Pay just makes them easier to use in an app. No one used them for IAP of digital goods because Apple forbade that on a policy level, which is likely to continue. Likewise, apps already allow credit card purchases for real-world items like Uber rides, Amazon physical items, etc.
3pt14159 12y ago
The reason that the friction argument is bullshit is that Apple forces you to use their system. If their system truly was better, (higher conversion) then they could reasonably explain this to the people they charge. Another reason that 30% is BS is that it leaves no room for low margin sales. If I make an app that helps you find and buy the right computer monitor or TV, I'd have to mark it up 25% in order to break even after Apple takes it's cut.
Woozey 12y ago
Where does it say that in app delivered digital content will be allowed to be purchased by Apple Pay?
- julien_c 12y ago
  Nowhere, and it probably won't.
  - Woozey 12y ago
    That's what I thought. The article does not make that clear at all. So the hypothetical payment model suggested is directly against the guidelines of what currently exists. A model that explicitly requires in-app digital content and subscriptions to be paid through IAP. While you can use external payment in app for other types of payment e.g. Hailo. There is no reason at all for Apple to deviate from this model because of Apple Pay. What are the assumptions in this article based on? I really don't know why the author is suggesting the above - and that's without going into the financial implications.
EGreg 12y ago
I see ApplePay and Google Wallet as the Virtualization of payment, basically turning your credit card accounts into electronic accounts with per-device and per-payment tokens. Which means that security will be a lot easier, numbers can't get stolen, and the merchant now doesn't AUTOMATICALLY get your info from your credit card, while retaining the ability to track you (probably) as long as the Payment Processors allow it. HOWEVER! It also means that these companies will need to integrate their new payment system deeper and make it compete with IAP on their own ecosystem. Since this system disrupts credit cards for real world purchases, it can't take a 30% cut. So you end up with two systems of payment, one which takes 30% and one which doesn't. You can bet your buttocks that publishers of online content will try to find ways to use the CREDIT CARD PROCESSING system instead of IAP, even if it means no fancy things like recurring subscriptions - things which ApplePay will have to add later. In short, Apple will have to bend over backwards to justify preserving the 30% cut on IAP. That 30% incidentally is also what keeps all apps from being free in the store - once IAP is cheap, why charge people 30% upfront for the app? In short, I'm interested to see how Apple is able to keep ApplePay from cannibalizing its revenue from the App Store, by disrupting its own IAP service.
- logician76 12y ago
  I agree that this is the most interesting thing to watch for, whether apps will go with ApplePay or IAP. However it seems that credit card transactions also have a fixed per transaction fee of 19 cents or higher, not sure what these are for ApplePay yet, but that could factor in when IAP are just 1 dollar amounts.
Someone1234 12y ago
> It’s an uncomfortable truth, but most publishers can’t be reasonably trusted with personal information like email addresses and phone numbers. Citation? Anything? That point isn't well explored but it is a "truth" apparently.
- nemothekid 12y ago
  Security. Given the recent attacks on retailers, it seems retailers aren't adept in making sure their customers information is protected.
  - Someone1234 12y ago
    He said "publishers" not retailers.
janfoeh 12y ago
What I would like to know is if Apple has any plans to make Apple Pay available for the mobile web? Implementation issues aside, I am not too hopeful on that front. Which is really a pity, because it would be so much more useful in a browser context. For one-time purchases I am not downloading an app, and even for shops I use regularly I overwhelmingly prefer the web, because most apps are markedly inferior to their browser cousins. See: Amazons Windowshop apps' lack of filtering.
- callmeed 12y ago
  I agree it would be useful, but I can also see a myriad of reasons why they'd never do it.
craigching 12y ago
If you do away with 30% of IAP, then you may as well get rid of the 30% cut in the app buy itself because if IAP is basically free, no one will charge for the app and will instead monetize the app through IAP. This would arguably be a worse experience for customers IMO. And I can't see Apple letting 30% for the app buy go either.
- Pxtl 12y ago
  Exactly. That's what confuses me - with this approach, a company could use Apple Pay to circumvent all the app store fees altogether.
calvinbhai 12y ago
go to this link https://developer.apple.com/apple-pay/Getting-Started-with-Apple-Pay.pdf https://developer.apple.com/apple-pay/Getting-Started-with-A... scroll down. It says clearly: Apple does not charge users, merchants or developers to use Apple Pay for payments. Your credit and debit transactions will continue to be handled by the payment networks.
mstolpm 12y ago
I don't think Apple Pay will have any implications on IAP in the near future. Apple guidelines clearly show that Apple Pay is for physical goods and services, IAP for digital stuff: "It is important to understand the difference between Apple Pay and In-App Purchase. Use Apple Pay to sell physical goods such as groceries, clothing, and appliances. Also use Apple Pay for services such as club memberships, hotel reservations, and tickets for events. On the other hand, use In-App Purchase to sell virtual goods such as premium content for your app, and subscriptions for digital content." Source: https://developer.apple.com/apple-pay/Getting-Started-with-Apple-Pay.pdf https://developer.apple.com/apple-pay/Getting-Started-with-A...
chmars 12y ago
> According to Bloomberg, Apple is charging banks. > But that is coming from the fees paid to banks by > merchants, so the thesis about this being free for > both merchants and customers still stands. Apple is charging the banks and the banks are charging the merchants – so it is not free … and of the Apple _and_ bank fees are of course part of the customer price.

69 points by jamesmoss 12y ago

He is wrong. In fact Apple charges the banks: http://www.bloomberg.com/news/2014-09-10/apple-said-to-reap-fees-from-banks-in-new-payment-system.html http://www.bloomberg.com/news/2014-09-10/apple-said-to-reap-... Which makes sense, when you read the technical details published earlier today here on HN: http://clover-developers.blogspot.de/2014/09/apple-pay.html http://clover-developers.blogspot.de/2014/09/apple-pay.html

markonen 12y ago
Missed this completely, thanks! Updated the article.
Justsignedup 12y ago
Banks make money from credit cards by * charging a % from each transaction * late fees * interest on balances This assumes banks make less money on transaction fees than they do on the other two when coupled with the potential for fraud... An interesting assumption...
- ssharp 12y ago
  Is this how it works? My assumption was that Mastercard, Visa, American Express, and Discover were the ones that made the % of each transaction and then the issuing banks were the ones that made the money from fees and interest.
  - nthj 12y ago
    It's my understanding banks also charge a transaction fee (may be flat per-transaction rather than a percentage.) (Source: I work for an online ticketing company, so we deal with these types of things.)
  - dangrossman 12y ago
    Most of the fees end up back with the card-issuing banks. That's how they pay for the rewards programs, and why the fees are higher for rewards cards than other types.
r00fus 12y ago
> He is wrong. In fact Apple charges the banks The article you're linking to is not definitive. The source is anonymous and not confirmed: "Under deals reached with banks individually, Cupertino, California-based Apple will collect a fee for each transaction, said one of the people, who requested anonymity because terms aren’t public."

dognotdog 12y ago

The Appstore revenue is dwarfed by hardware sales, with all of Appstore/iTunes revenue being less than 10% of iOS hardware sales. Apple certainly doesn't NEED the 30%, but it's very doubtful they'd reduce it.

atmosx 12y ago
Apple's Gross Profit[1], as of June 2014 is about $76B. A 10% cut translates to $7.6B per year (as of today, probably more in the future). It's a huge load if you ask me. [1] http://www.wikinvest.com/stock/Apple_(AAPL)/Data/Gross_Profit http://www.wikinvest.com/stock/Apple_(AAPL)/Data/Gross_Profi...
frogpelt 12y ago
I would guess that the profit margin on IAP is higher than on hardware. How much does it cost to maintain the servers and infrastructure associated with IAP vs. the cost of building hardware?

zura 12y ago

Anyone can point to the list of supported merchant/developer countries for Apple Pay? Or is there any plans to add new countries to apple appstore? It is 2014 and I'm still unable to publish [any] apps on Apple app store and paid apps on Google Play... I'm based in Georgia, Europe.

amirmc 12y ago
Visit the iPhone 6 page and scroll down [1]. There's a list of participating banks and merchants (currently US only). https://www.apple.com/iphone-6/apple-pay/ https://www.apple.com/iphone-6/apple-pay/

dirtyaura 12y ago

It's an interesting change for SaaS services too. For example, just a few days ago I paid for Evernote Yearly subscription through iAPs, which meant that Apple took a 30% percent cut of that $45. If Apple allows Apple Pay for SaaS subscriptions, what that will mean for iAP economy in general? Will Supercell implement a subscription service for Clash of Clans with a monthly amount of virtual currency?

PinguTS 12y ago
But still there is the question, did Apple took all those? I would say, it depends. World wide, you can buy those prepaid iTunes cards to fill up your account. I do that regularly. I do this, because at least here in Germany from time to time the merchants have discounts of 25% to 30% on those cards. Thats no shady merchant, but the big brick and mortar chains. That let me assume, that Apple is selling those cards to those merchants with about this discount.

personZ 12y ago

"The 30% IAP cut equals billions of dollars in yearly revenue. But being in this commission business is not in Apple’s DNA." I would say it is entirely in Apple's DNA. Apple has aggressively tried to inject themselves between sellers and buyers in multiple markets, even where their value add is unwanted and unnecessary. And I don't fault them at all for that. They're a business and they're doing what businesses do, growing revenue. Trying to get a pound of flesh from the payment industry process is something many players are aggressively trying to do right now, and Apple is no exception. And of course in the end all fees end up being borne by consumers. One fallacy that many make in such discussions is the argument that Apple makes so much from hardware they really don't care about the smaller parts of their business, yet they have shown that they care very much about it. Don't think of Apple (or Google, or Microsoft, or any other growth company) as a $N billion dollar company -- every day they are, to the people fighting for more market, a $0 company, because all that matters to the tiers and people involved is $(M-N) tomorrow.

markonen 12y ago
One reason why I suspect Apple could be different in this regard is the fact that they famously have only a single P&L. So whereas in other companies divisions and the SVPs running them would jealously guard every piece of revenue that was rightfully theirs, Apple as an organization could be better equipped to avoid that — if deemed beneficial to the overall business.
ThomPete 12y ago
The 30% as far as I understand is roughly covering the cost of running the app store. I.e. huge revenue but not really much profit.
- personZ 12y ago
  I would be really surprised by that. The gross 30%, presuming it always applied, would be about $6 billion per year, which would be an enormously expensive online store. Of course Apple's cut is often lower than 30% -- I can frequently buy $100 iTunes cards at Costco for $80, for instance, and then add that the retailer surely gets a cut as well. Nonetheless, the iTunes empire is currently doing almost $20B of business a year, with a $6B cut. The NFL, in contrast -- for all its seeming enormity and influence -- is about a $8B business, gross.

hackerboos 12y ago

So companies[1] that had to previously shut down because of the 30% can return? [1] - http://www.cnet.com/uk/news/as-iflow-reader-app-closes-harsh-words-for-apple/ http://www.cnet.com/uk/news/as-iflow-reader-app-closes-harsh...

ceejayoz 12y ago
Almost certainly not. Credit cards have always been a usable payment method, Apple Pay just makes them easier to use in an app. No one used them for IAP of digital goods because Apple forbade that on a policy level, which is likely to continue. Likewise, apps already allow credit card purchases for real-world items like Uber rides, Amazon physical items, etc.

3pt14159 12y ago

The reason that the friction argument is bullshit is that Apple forces you to use their system. If their system truly was better, (higher conversion) then they could reasonably explain this to the people they charge. Another reason that 30% is BS is that it leaves no room for low margin sales. If I make an app that helps you find and buy the right computer monitor or TV, I'd have to mark it up 25% in order to break even after Apple takes it's cut.

Woozey 12y ago

Where does it say that in app delivered digital content will be allowed to be purchased by Apple Pay?

julien_c 12y ago
Nowhere, and it probably won't.
- Woozey 12y ago
  That's what I thought. The article does not make that clear at all. So the hypothetical payment model suggested is directly against the guidelines of what currently exists. A model that explicitly requires in-app digital content and subscriptions to be paid through IAP. While you can use external payment in app for other types of payment e.g. Hailo. There is no reason at all for Apple to deviate from this model because of Apple Pay. What are the assumptions in this article based on? I really don't know why the author is suggesting the above - and that's without going into the financial implications.

EGreg 12y ago

I see ApplePay and Google Wallet as the Virtualization of payment, basically turning your credit card accounts into electronic accounts with per-device and per-payment tokens. Which means that security will be a lot easier, numbers can't get stolen, and the merchant now doesn't AUTOMATICALLY get your info from your credit card, while retaining the ability to track you (probably) as long as the Payment Processors allow it. HOWEVER! It also means that these companies will need to integrate their new payment system deeper and make it compete with IAP on their own ecosystem. Since this system disrupts credit cards for real world purchases, it can't take a 30% cut. So you end up with two systems of payment, one which takes 30% and one which doesn't. You can bet your buttocks that publishers of online content will try to find ways to use the CREDIT CARD PROCESSING system instead of IAP, even if it means no fancy things like recurring subscriptions - things which ApplePay will have to add later. In short, Apple will have to bend over backwards to justify preserving the 30% cut on IAP. That 30% incidentally is also what keeps all apps from being free in the store - once IAP is cheap, why charge people 30% upfront for the app? In short, I'm interested to see how Apple is able to keep ApplePay from cannibalizing its revenue from the App Store, by disrupting its own IAP service.

logician76 12y ago
I agree that this is the most interesting thing to watch for, whether apps will go with ApplePay or IAP. However it seems that credit card transactions also have a fixed per transaction fee of 19 cents or higher, not sure what these are for ApplePay yet, but that could factor in when IAP are just 1 dollar amounts.

Someone1234 12y ago

> It’s an uncomfortable truth, but most publishers can’t be reasonably trusted with personal information like email addresses and phone numbers. Citation? Anything? That point isn't well explored but it is a "truth" apparently.

nemothekid 12y ago
Security. Given the recent attacks on retailers, it seems retailers aren't adept in making sure their customers information is protected.
- Someone1234 12y ago
  He said "publishers" not retailers.

janfoeh 12y ago

What I would like to know is if Apple has any plans to make Apple Pay available for the mobile web? Implementation issues aside, I am not too hopeful on that front. Which is really a pity, because it would be so much more useful in a browser context. For one-time purchases I am not downloading an app, and even for shops I use regularly I overwhelmingly prefer the web, because most apps are markedly inferior to their browser cousins. See: Amazons Windowshop apps' lack of filtering.

callmeed 12y ago
I agree it would be useful, but I can also see a myriad of reasons why they'd never do it.

craigching 12y ago

If you do away with 30% of IAP, then you may as well get rid of the 30% cut in the app buy itself because if IAP is basically free, no one will charge for the app and will instead monetize the app through IAP. This would arguably be a worse experience for customers IMO. And I can't see Apple letting 30% for the app buy go either.

Pxtl 12y ago
Exactly. That's what confuses me - with this approach, a company could use Apple Pay to circumvent all the app store fees altogether.

calvinbhai 12y ago

go to this link https://developer.apple.com/apple-pay/Getting-Started-with-Apple-Pay.pdf https://developer.apple.com/apple-pay/Getting-Started-with-A... scroll down. It says clearly: Apple does not charge users, merchants or developers to use Apple Pay for payments. Your credit and debit transactions will continue to be handled by the payment networks.

mstolpm 12y ago

I don't think Apple Pay will have any implications on IAP in the near future. Apple guidelines clearly show that Apple Pay is for physical goods and services, IAP for digital stuff: "It is important to understand the difference between Apple Pay and In-App Purchase. Use Apple Pay to sell physical goods such as groceries, clothing, and appliances. Also use Apple Pay for services such as club memberships, hotel reservations, and tickets for events. On the other hand, use In-App Purchase to sell virtual goods such as premium content for your app, and subscriptions for digital content." Source: https://developer.apple.com/apple-pay/Getting-Started-with-Apple-Pay.pdf https://developer.apple.com/apple-pay/Getting-Started-with-A...

chmars 12y ago

> According to Bloomberg, Apple is charging banks. > But that is coming from the fees paid to banks by > merchants, so the thesis about this being free for > both merchants and customers still stands. Apple is charging the banks and the banks are charging the merchants – so it is not free … and of the Apple _and_ bank fees are of course part of the customer price.