Cascades in Electronic Payment Systems
The release of Apple Pay alongside the iPhone 6 has brought with it a recent surge in interest in electronic payment apps. The concept is relatively simple: credit or debit card information is electronically stored (be it on the cloud or locally on a computer or smartphone) and accessed with a program to make quick and easy payments. This concept itself isn’t particularly new; one has been able to store and use payment information online through Google Wallet for years now. While they have existed online, these technologies have been much less present in brick-and-mortar retail locations.
Incorporating these technologies into people’s physical shopping habits is no small task, though. If one is trying to promote a specific mobile payment system, one must simultaneously convince both retailers and consumers to use your app. In network terminology, mobile payment apps involve substantial direct benefit cascades to the extent that the app is valuable to retailers only if many consumers use it, and it is only valuable to consumers if many retailers use it. This type of cascade can be extremely robust; once a critical mass of consumers and retailers have adopted one app over another, that app will be much more beneficial relative to its competitor for any other consumers or retailers looking to adopt a mobile payment app. Consequently, there is a great benefit to being the “first” established mobile payment app on the market.
With this and the concept of direct benefit cascades in mind, recent news regarding Apple Pay and CurrentC (a competitor) might come as no surprise. The collection of major retailers belonging to the Merchant Customer Exchange (MCX) which develops CurrentC have received some flack for actively disabling technologies which would allow Google Wallet and Apple Pay to work in their stores. From a network perspective, this could be justified as a “rational” decision on the part of these retailers. They have a vested interest in the success of CurrentC, a competitor to these apps. By disabling these apps in their stores, retailers automatically put CurrentC at an initial advantage to consumers who are looking to adopt a mobile payment app. Assuming that we shortly see the initial mainstream surge of adoption of these apps, now may very well be the critical moment where the first set of technology adopters determine which app or apps will snowball to dominate the market.
News on this matter has developed as recently as last evening, though. Websites across the internet (such as the below Tech Crunch article) have reported on a data breach occurring within CurrentC’s pilot program. Hackers acquired the e-mail information of participants in the pilot program. While this breach may not have been extremely catastrophic, it does reflect an almost immediate failure to keep information on users of the app private. Considering the association of apps such as CurrentC with banking and credit card information, this may be a blunder to which early adopters of the technology do not take kindly.
It will certainly be interesting to see how the market reacts to both CMX’s “underhanded” tactics in promoting CurrentC, and to a souring of the app’s reputation due to its very early security issues.
Reference: http://techcrunch.com/2014/10/29/retailer-backed-apple-pay-rival-currentc-has-been-hacked-testers-email-addresses-stolen/