What Apple Pay Could Mean for In-App Purchases

"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.

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?

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.

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.

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.