The article is not compelling. Visa and Mastercard only take a very small cut of txns (15-30 BPs). The bulk of fees go to the card issuers with the bulk of that revenue supporting loyalty/rewards programs. You could try to get rid of V/MC but they have provided quite valuable organization.

The only argument that you can really make is that the issuer cut needs to be trimmed in which case rewards/loyalty cards would mostly go away. Good for merchants, bad for issuers and terrible for cardholders.

A payments network on the scale of V/MC that has worked near perfectly for over 50 years is far from "fundamentally broken".

I don't think tom is advocating for DD, in this instance. Particularly since direct debit isn't really suitable for POS transactions.

Credit cards are fundamentally a 1970s business model, based on tech that paid off their sunk costs decades ago, but the barriers to entry are so high they're impossible to overcome right now.

Given you can check balances and make payments in (near)real time, at least in Europe, there's no reason to continue to use Visa/MC, other than barriers to entry. You could check balance at POS over the internet and pay from your merchant account, recovering payment within an hour or so via faster payment. Frictionless credit isn't the same as unrestricted or unregulated credit - it's about removing the tether between one bank and one cRd - disintermediation of the bank. Why can't I have a credit card linked to zopa? Or someone else, or even, within an overall limit agreed by an umbrella provider, a number of different providers. That'd be cool, and would drive channel providers to compete on costs of service delivery (the 2-3% per transaction), as well as on cost of credit. Visa and MasterCard are an absolute racket, and one of my biggest grumps is that PayPal became just like them, if not more expensive.

Isn't one incentive for using a credit card that it has better protections from fraud, etc? If my credit card # is stolen, I have a 30 day window to report fraud instead of paying, whereas with a debit card, the money is gone straight from my account.

The article makes very little sense.

First, not every payment requires credit cards or a need for financing.

Second, advocating the idea of cheap and frictionless credit is dubious at best; subprime loans didn't exactly end well.

Last but not least, it's unclear what you're advocating for instead of what Apple did.

Paypal, which you mention towards the end, does everything through cards and bank accounts, with the additional twist of you carrying a balance with Paypal. But they're a bank for all intents and purposes. And regulated as such, at least in Europe. Apple isn't in that business, and that's a good thing. Remember how GE or US car businesses ended up in the wake of the subprime crisis.

Doesn't use of Apple Pay give banks the option of routing the money/debt thru other means? Chase just announced Pay support, and has been pushing "direct pay" (Chase account to Chase account) for a few years - might they observe that an Apple Pay event is in fact going from (say) Chase account to Chase account via debit "card", so just make the transaction internally and manage to cut Visa et al out of the transaction entirely? And, as such, increasingly avoid the "fundamentally broken payments system"?

I doubt Apple will make any money off of transactions, can someone prove me wrong? They aren't part of the exchange, so they wouldn't have any way to collect fees. I don't know where the author thinks there would be "extra costs" - payment technology has always been something the financial institutes absorbed. In this case, I imagine Apple incurred the cost of developing the app and the payment networks will have an ongoing cost to maintain their Token Service Provider.

Apple Pay is really just an implementation of the contactless schemes (I say schemes because mastercard, visa and amex have their own flavours which preceded EMV's specs) using EMV tokenization, as the author mentions.

I agree that the payment system and requiring a third and fourth party can eventually be eliminated, but how can we expect the financial institutes to replace credit cards when they have no control over the payment networks?

Edit: I know a few years ago there was a new group created by merchants to develop a "payment card" which would be free of charges. Seeing how big merchants are, it would only make sense that they collaborate to develop a free payment technology which works with the financial institutes.

Just Apple. Not anybody else trying to integrate with payments companies. Apple only is responsible for this.

Embrace, extend, and extinguish.

Step one requires working with the industry.

I thought that the big issue with the current system is that every transaction uses the whole set of identifiable info (name, cc number, exp date, etc). Credit cards with chips solve the issue, but in US it would take costly upgrades across the whole ecosystem.

Apple Pay comes as a layer on top the existing system, bringing primarily the same level of security as the chip-based cards.

Of course, it is a solution that assumes you have an iPhone 6, which is not a cheap and accessible thing for everybody, and that the merchant has the reader. The large/high-end merchants will have no issues moving to NFC payments and it will make Apple Pay a viable solution.

"merchants are paying around 2-3% of every transaction as a tax levied by those incumbents, who add little value in return."

How about fraud protection (on both ends)? I'm old enough to remember people being afraid to use credit cards online. It would be great if things like Dwolla were more ubiquitous, but until then...

I think another perspective is that credit card support is a good back compatible solution. If people are using their devices to store payment information then it's not very far fetched to imagine other types of wallets/credit replacing visa/mastercard/etc.

Using an iPhone makes me pay for apps that are free in the android ecosystem.. What's the inventive for me to start paying using an known expensive ecosystem?

At some point the credit card industry is going to get disrupted. It's so broken + they take on so little risk that it's just a matter of time.

My belief is that bitcoin coupled with the right payment experience will disrupt the industry at some point. I would highly suggest reading Marc Andreessen view on the subject: http://blog.pmarca.com/2014/01/22/why-bitcoin-matters/

Speaking of which, is there still any doubt in anyone's mind that Apple Pay is the reason Apple started banning Bitcoin apps? At the time I don't think the Apple payments rumor existed, at least not in the "almost-official" sense, and I think many were skeptical that was the reason Apple was banning those apps.

I do not understand what this article is actually advocating for.