Too Soon To Say Bitcoin And Apple Pay Will Flop

The Gimlet Eye

While we were putting together this month’s cover package observing the sixth anniversary of Bitcoin, it struck me that this bête noir of banking shares something in common with that other upstart in digital payments, Apple Pay.

Yes, they are different in nearly every respect. For consumers, Bitcoin offers a cryptographically signed currency that resides inside a digital wallet. For merchants, it carries relatively low transaction fees and by its nature offers irrevocable payment, which means no chargebacks. For both parties, it offers nearly instantaneous settlement.

Apple Pay is quite another animal entirely. It is itself the wallet, storing virtual credit and debit cards issued by financial institutions. On this wallet it overlays the added security of Touch ID, its biometric authentication (see Components, “A Quickening Pulse,” this issue for more on this technology) system, and tokens masking actual card numbers. Since it holds existing network-branded cards, it’s far more widely accepted than Bitcoin. But it offers merchants little relief on chargebacks or overall transaction costs.

So what do these two have in common? To our eye, it’s the readiness of some observers to predict the ultimate failure of both ventures.

Bitcoin has no central control, no “Federal Reserve,” watching over it, and that places it too much in the cross-hairs of regulators, it is argued. It may offer some benefits to fee-weary merchants but little of real value to mainstream consumers, limiting it to a mathematically minded subculture with libertarian leanings.

Apple Pay, these observers argue, is riding on hype generated by Apple Inc.’s well-practiced publicity machine. Pierce through all the PR, they say, and you’ll see that the wallet is severely limited. Only iPhone owners are eligible users, and at that only owners of the new iPhone 6 can use it in stores. At a minimum, that leaves out all users of Android devices, which account for 52% of all mobile phones.

Now, we don’t hold a brief for either Bitcoin or Apple Pay. But it seems premature to predict doom for either one. On the indictment that Apple Pay only works on Apple phones, guilty as charged. But since Apple’s real aim is to sell more phones, not more payments, this deficiency is unlikely to rattle the honchos in Cupertino. As for Bitcoin, whether it penetrates the mainstream or not may ultimately turn out to be irrelevant. As our story points out, its real value lies in its underlying architecture, which makes secure, instant, irrevocable transactions possible.

So let’s give these two a little more time. After all, payments is a hard business. Just ask an old-time banker how long it took ATMs to catch on.

John Stewart, Editor

john@digitaltransactions.net