Wednesday, April 9, 2014

Apple, American Express, Mobile Payment: Twenty Five Percentage Of a Market Isn't Bad If It's the High-End and Profitable

I have been thinking about mobile payment for a while and have been waiting for the day when I can just leave my wallet at home and just carry around with me my phone as far back as I can remember.  So far, that day is not even remotely close.  But that's the topic for another day. 

Mobile payment is what is on everyone's mind these days with dozens of efforts to try to get it off the ground including early and continuing attempts to make work with NFC.  However, without the support of a few major players like Apple, it's going nowhere.  See, Apple has its own vision for mobile payment and we've see a few pieces of this initiative in Passbook and TouchID.

Whatever and however the implementation Apple decides to proceed with mobile payment, here's the thing to consider.  The iPhone accounts for about 20 to 25% of the mobile market in terms of units sold each year and we don't know if the needle on that will move further up much.  Still, 25% of a market could be seen as a failure, right?

Not if this 25% consists mostly of the high-end portion of the market. And that is exactly what Apple has for the most part.  This is true in terms of iOS device sales as well as the PC market where Apple has only 10% of the overall computer market but seems to be the only computer company that is making any money these days.

What does this have to do with mobile payment.  Consider the four dominant cards available.  According to The Nilson Report, VISA and Mastercard dominates the credit market with American Express account for 12%.  In terms of transactions, American Express accounted for little more than 3.5%. 

However, CardHub showed that in terms of value (data from 2012, it's all I can find on the Internet), American Express accounted for 25% (probably 27%) of value of all credit card transactions - beating out even MasterCard.  Over all, American Express has more than three times the value of transaction per card over its rivals. 

Why is this at all important to Apple and mobile payment?

American Express, considered more exclusive and higher end, just like Apple's products, may not have the dominance in terms of cards issued but the level of spending is what matters most and that is where it has a bigger piece of the pie.

When Apple does enter the payment market with its 600 million iTunes accounts, Apple still will not dominate the handset market.  However, given that Apple users having a tendency to embrace new apps and features, a vast majority of iPhone users will embrace mobile payment if Apple does implement it correctly. 

The same assertion cannot be applied to Android users.  Furthermore, with iOS users more comfortable with shopping on their mobile devices than Android users and spend more per transaction (BGR), iPhone users may help Apple dominate the payment market even if it does dominate the over all handset market.

Like American Express who does not own the credit card market in terms of cards issued, Apple will not show up big in terms of number of mobile payment users compared to Android.  However, like American Express credit card users, iPhone users will rack a higher average total billing than non-iOS mobile payment users.  It's even possible that Apple could dominate the purchase and value market through mobile payment.

That is already happening.  Last Holidays season, iOS users accounted for 5X more sale and spent twice more per transaction than Android users. 

That said, the future isn't written in stone.  No one  knows exactly how Apple's mobile payment works.  Perhaps, an updated Google Wallet could be just what users want.  Key here is competition and the potential that mobile payment holds.  Personally, I'm cautiously expected by the prospects. 

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