The debate rages on: Will Apple's halo effect mainstream mobile payments and cement Apple Pay's world domination. The discussion has accelerated with the product's real-world use over the past month. I've been using it all over town.
Even before that, I made no secret of skeptical views on Apple Pay's impact, or at least the amount of time it will take. That mostly examined compatibility-burdened point of sale (POS) payments. But I've since realized a lower barrier use case: In-app payments.
Stepping back, Apple already dominates in-app payments for digital goods, as iTunes billing is tied directly into apps. That drives 79 percent of total app revenues, especially games. Apple Pay will take user friction out of many such transactions.
But where it will really impact in-app payments is physical products and services procured offline. That's the larger opportunity everyone always seems to forget: more than 93 percent of U.S. retail spending (and nearly all services) physically happen offline.
That's where Apple Pay fits nicely, and where apps are increasingly used to summon what I call "on-demand local services" (ODLS). These are exploding in use and investment, a la Uber... not to mention "Uber for xyz" (dog walking, weed delivery, Ikea assembly, etc.)
Uber in fact is one of the few companies to really nail mobile payments. This comes down to the success factor I've espoused repeatedly: it solves real pain points. It this case, it takes the physical transaction out of the equation -- perfect for hurried transit scenarios.
The pain point that Apple Pay addresses with in-app payments is authentication across several apps. The highly fragmented world of apps compels a sort of Facebook Connect of payments. The value lies in being a unification layer that is 1. trusted, and 2. easy (TouchID).
This factor doesn't just apply to ODLS; we'll see retail apps with "order ahead" features. That addresses pain points like saving time and skipping long lines. It will include branded retail apps like Starbucks (already there) and Target, as well as third party players like Curbside.
But this value will ultimately be a function of how many ODLS and retail apps consumers use regularly. If it's few, there's not much of a fragmentation problem for Apple Pay to solve. If it's just Uber for example, it already has my credit card for the 2-3 times per week that I use it.
So the key question becomes, what's that sweet spot? What's the average weekly or monthly app-based transactions per consumer? Perhaps more important; how many apps is that spread across? My gut tells me the over-under is around seven.
BIA/Kelsey survey data peg local shopping apps used regularly at 3.4 ( kind of like having 2.5 kids). Is that enough to compel a unification layer for payments? Another important question: Will that number hold or grow with the ODLS economy?
One possible outcome is Apple Pay itself will stimulate that per-user app growth, which will in turn justify/compel further need for Apple Pay. If anyone can pull off that circular logic, it's Apple. It has the brand, marketing muscle and it owns the user touch point (read: iThings).
Speaking of iThings, the biggest question not yet asked is "why?" Apple Pay's endgame isn't transaction revenues or retail loyalty programs as many have guessed. These would be meager relative to Apple's $183 billion in revenue. Not to mention that these things are very "un-Apple."
The reason for Apple Pay is rather to make iPhones more attractive and competitive. Just like I argued for its mapping moves, it's to embolden positioning in the much larger game of selling iThings. That's Apple's core -- and hugely profitable -- business where all other roads lead.
So Apple Pay doesn't need to transform the retail POS, or the "On Demand" economy. All it has to really do is to sell more iThings. Given Apple's halo effect and Apple Pay's central positioning within iWatch and other iThings to come, it's already well on its way.