Apple Pay and Game Theory
Apple Pay – Apple’s latest and greatest innovation – has the potential to spark the next big shift in the payment network as we know it. Depending on its reception with consumers and the scope of its adoption by companies, it could prompt contactless payments to replace our current, card-based system. It is hard to foresee how successful Apple Pay will be, as companies will have to invest in the technology (NFC readers) in order to offer wireless payment to their customers, and the investment may or may not be worthwhile depending on the popularity of Apple Pay.
Game theory can be used here to illustrate the trade-offs for both customers and companies who are deciding whether or not to use Apple Pay. The customer’s choices are to use or not to use Apple Pay, supposing that they have the opportunity to, and the company’s choices are to invest in the NFC readers or not invest in them, (in which case Apple Pay would not be a payment option at their store).
| COMPANY | ||
| CUSTOMER | Invest | Don’t Invest |
| Would Use | (2 , 2) | (-2 , 0) |
| Would Not Use | (0 , -2) | (0 , 0) |
If the company decides to offer contactless payment and the customer wants to use Apple Pay, both parties benefit – the customer is happy and the company’s investment was worthwhile. If the company does not invest in NFC readers and the customer does not want to use Apple Pay anyway, neither party is any better or worse off. However, if the company does not invest in the NFC readers and the customer would have liked to use Apple Pay, the customer is “worse off,” or at least inconvenienced by the fact that the company doesn’t offer the preferred payment method. If the company decides to invest in NFC technology and the customer does not use it, the company is worse off because its investment (at least for the given transaction) was fruitless.
http://www.forbes.com/sites/jonmarkman/2014/09/12/apple-pay-tips-to-new-era-of-fully-digitized-money/