Mobile payments: not an obvious home run for Apple

The web seems to be buzzing today about how Apple's new mobile payments system is going to be a home run for the company, even if the new phones themselves are not especially amazing.

In my opinion, this is totally misguided. Mobile payments are simply a problem in search of a solution for Apple's target demographic of affluent consumers.

There has been a lot of anxiety in society and in the media lately about how insecure and broken our American system of magnetic-stripe cards is, and how we're way, way, way behind Europe in the implementation of superior EMV smart-chip cards.

The fact is that none of this matters: if you have good credit, credit cards are an amazing deal and you don't have to worry about security at all. I personally have had several credit cards cloned and used in Eastern Europe, and physically lost at a restaurant and used in local shopping sprees. You know how much it has cost me? Zero dollars, zero effect on my credit rating, and maybe 5-10 minutes per incident to report it online and get the issuer to refund my money and send me a new card.

Magnetic-stripe cards are indeed very insecure. However, this terrible security is a problem that mostly screws over people using debit cards, especially poor people using pre-paid debit cards, which have limited and inconsistent fraud protection. If you're using a US credit card from any well-known issuer, you do not have to worry about security at all: it's the merchant's problem, or the bank's problem, not yours. US law limits cardholder liability to $50 in almost all cases, and in practice all the major issuers reduce this to zero liability.

The other thing about credit cards is that many of them pay significant rewards in terms of sign-up bonuses (50,000 frequent flyer miles! $200 cash back! 5% off all your restaurant purchases!). I've stopped keeping close track, but I'd guess I save about $2k a year by employing a carefully-chosen mix of 5 different credit cards, and replacing them with new ones occasionally when better bonus or cash back offers appear. However, these high-rewards cards are mostly only available to affluent people with excellent credit.

What does this all have to do with Apple? The people who buy iPhones are wealthier and better-educated than average. They quite likely don't need mobile payments because our existing system of credit cards serves them very well. Mobile payments do indeed offer a lot of great possibilities in terms of easier and more secure access to money, but most of these benefits would accrue disproportionately to less well-off consumers.