#lastweek — Crypto, Apple and Payments

Top reads and insights from the week on crypto, WWDC and payments.

Crypto

I have been reading a lot about crypto over the last few months. I regret not having an interest earlier. And, it has nothing to do with Bitcoin, but the fundamental technology and philosophy of crypto. (Of course, I could have potentially made some money had I built any awareness earlier.) I am at a 0.1% level of crypto understanding now. Trying to get better by reading and writing about it. Here’s a small start.

Regulations Coming

The road to formalising crypto is getting started. El Salvador adopted Bitcoin as legal tender. And regulators are starting to put a framework in place.

The Basel Committee on Banking Supervision, which consists of regulators from the world’s leading financial centres, is proposing a “new conservative prudential treatment” for crypto-assets that would force banks to put aside enough capital to cover 100% of potential losses.

Yes, this is extreme risk aversion. Any adoption of a fundamental shift happens slowly.

The India Connection

I still have a lot to learn about Polygon. But this is surely exciting.

So, what is Polygon? Polygon (formerly known as MATIC) is an Indian blockchain scalability platform called ‘the Ethereum’s Internet of Blockchains’. It is the answer to some of the challenges faced by Ethereum today – such as heavy fees, poor user experience and low transactions per second (TPS). And it aims to create a multi-chain ecosystem of ethereum compatible blockchains.

Recommended Reading

Apple — WWDC and the Creator Economy

WWDC

Of all the announcements, Universal Control was one of the most exciting. One can control up to 3 devices (Macs and iPads) with the same keyboard and mouse. My interest is personal. This is a need I often feel working on my 15″ MacBook Pro (with its broken screen), a MacBook Air M1 and iPad Pro.

The technology behind it though is simple. Just read this Verge article.

It turns out that the entire system is actually simpler than it first appears. It’s essentially a new way to use a bunch of technologies Apple had already developed. That’s not a knock on Universal Control — sometimes the best software features are a result of clever thinking instead of brute force technological improvements.

The key insight here though is how different technologies developed independently to solve different problems come together to solve an entirely new problem. This is something that’s easy to overlook when building new products and features. Technology is often additive. And the sum can be greater than the parts. This is why it is important to think about how (1) something is immediately useful for customers and (2) how it becomes infrastructure for the future.

The Creator Economy

There are a few different threads emerging here. First, how the privacy focus can have an indirect positive effect on creators as more and more marketers start thinking about influencer marketing.

According to Influencer Marketing Hub, the industry grew from $1.7 billion in 2016 to a projected $13.8 billion in 2021. The Covid-19 pandemic and a massive increase in online shopping were major factors. In a May 2021 report on what it dubbed the “Creator Economy,” the Economist said that a new “creator middle class” is rapidly emerging, fuelled by increasing competition for content and a shift towards subscription models.

Marketplace for matching influencers and marketers anyone? While these second and third order effects can pan out positively, it may largely limit the gains to a relatively small population.

While privacy is good, it does affect the small guys more. A lot has been written on these.

  1. Cost of regulation (like GDPR) affects a Google or a Facebook much less than a small startup.
  2. A blanket ban on third-party tracking only concentrates advertising business within ecosystems like Facebook and Amazon.
  3. And some of this introduces business model barriers. Like the potential impact on advertising driven free content.

With the change to email tracking, Apple is killing off one of the few ways email senders actually had to understand their audience in one fell swoop–that simple tracking allowed many newsletters to monetise their work instead of charging subscription fees. The irony, of course, is if those newsletter creators were to build a free app, they would be allowed to track whatever users do within it.

And then there is this. Apple’s unbound greed. They will eventually pull back on this — whether based on common sense or by regulatory action remains to be seen. But this is not good optics. And it is not good for creators.

Payments

BNPL

BNPL services are growing the world over. Including India. (It’s a small part of what I am working on as well.) There are challenges here that go beyond the finance or tech part of fintech. It’s also about doing what is right. A lot of BNPL customers are just that because they don’t have the financial means. It’s important to help them avoid the debt trap.

The crux of the case’s argument is that Afterpay’s marketing as interest / fee-free is deceptive, as it can cause users to incur insufficient funds (NSF) and overdraft fees, if a repayment is attempted when a user’s balance is too low to cover the charge.

This is where universal customer profile can help. Something that includes their credit behaviour across non-traditional credit sources. Fintechs can build their credit models on top of this data. And the data can be anonymised from a creditor’s perspective so no one knows anyone’s loan book.

Lack of visibility across BNPL providers poses a particular challenge in ensuring responsible underwriting and usage. There’s nothing to stop users from leveraging multiple BNPL providers concurrently, potentially overextending themselves — a problem that also exists in the payday market.

Fintech Network

Interesting argument here. The network is available everywhere.

If anyone is interested or motivated today, whether in Burkina Faso or Vanuatu, they can get on the network. More importantly, once on the network, they can communicate and transact. It is this latter point that gets interesting.

Photo of the Week

Sunrise in Munnar, Kerala from the Kolukkumalai peak

Sunrise in Munnar, Kerala from the Kolukkumalai peak. Woke up at 4am for what was the most backside jarring ride on a 4×4 ever. (And you can’t even imagine.) Very worth it.

App Store, Developers and their Customers

The narrative around Apple vs Hey in the past week has mostly focused on the draconian, and often arbitrary, App Store rules. And for good measure. Rules formulated in the early days of the App Store are due for a change.

However, most of the discussions have ignored the third side of this relationship — the customer. This is where the suggestions to dismantle the App Store or allowing alternative “App Stores” become a problem. While this may be good for some developers (some is the critical word here), it most certainly won’t be the preferred outcome for customers. 

The fundamental problem with this suggestion is that it ignores the second and third-order effects on customers. Let’s break this down — from the customer’s perspective. 

There are more reasons beyond what I mention here on why breaking up the App Store as the centralised distribution point is a bad idea.


Where do I get apps from?

There is no ambiguity about this. There’s one App Store. That’s where I get my apps from. And it’s already there when I buy a new phone. Nothing else to download. No dance with cables connected to laptops.

Even if we assume regulations force Apple’s hand to bundle alternate Stores with the iPhone, do customers know enough to trust them? And, worst case, if there’s no store app bundled – what then? The App Store (and the Play Store) solves this problem. Customers have built their habits with this reality for 10+ years. What happens if this is suddenly broken?

Is the app safe to download?

The stores abstract away this decision by imposing constraints and via the review process. What happens if it becomes the Wild West – like the Windows desktop app universe? How do customers know if an app can be trusted? This doesn’t affect the big-name developers or large corporations. But it does affect apps from small independent developers.

With alternate stores out there, can customers trust these stores versus something they have used for 10+ years?

Is the app any good?

Reviews, ratings and editorial recommendations play a role in customer decision making. A fragmented store ecosystem makes this far more difficult for customers to know if an app is really what it says it is.

How do I pay for the app?

This is one of the contentious issues of the current debate. But, let’s accept it, the integrated payment system makes life way easier for both customers and developers. I have had this experience first hand with payment processing via traditional gateways versus Apple Pay. While CC conversion rates on traditional gateways hover around 80%, Apple Pay is consistently around 98-100%. What’s better?

Let’s think through what happens if this wasn’t an option.

  1. Customers have to go through the dance of providing card details and 2FA.
  2. Lower payment success means increased customer dissatisfaction.
  3. And lower conversions for the developer along with increased support requests.

How do I track my subscriptions?

We are living in an era of subscriptions. Everything is a subscription. And it is very easy to lose track of what I am subscribed to and from where. On the App Store, this is consolidated. Allows me to track and change any time without going through credit card statements or searching for mails.

This is an already fragmented system today, and dissing the App Store will make things more difficult for customers.

Have I already purchased this app?

A fragmented distribution eco-system can also drive repurchases of the same app from different sources. Then this becomes a customer support issue. Not something independent developers or small businesses want to add this to their task list.


So, why are these issues? The PC (Windows and Mac) ecosystem has existed for decades. And people have adapted to life with the fragmented distribution models.

What’s fundamentally different is who uses phones. Global PC shipments in Q4’19 were at 70.6 m units [1]. Global smartphone shipments were 368.8m units [2]. And this gap has been widening in the last decade.

A generation of users who have never used a PC. Their knowledge of the platform is far limited than those debating the virtues of breaking the App Store apart. This is not the solution.

But that doesn’t mean that the rules should remain as is. What happened in the context of Hey is not ideal. But before we jump to recommending solutions, let’s think through the second and third-order effects on customers.

Before I could hit publish, spotted this. Change is inevitable.


[1] Gartner Says Worldwide PC Shipments Grew 2.3% in 4Q19 and 0.6% for the Year
[2] Smartphone shipments by vendor worldwide from 4th quarter 2009 to 1st quarter 2020


Update

Steven Sinofsky goes deeper on the topic drawing evidence from the early days of Windows.

It is really important to understand two things about the story I am trying to tell. First, everyone in the the entire “system” believes they themselves are acting in good faith and working to build great products. No one is going to “exploit” the platform or do bad things or make the platform look bad. Likewise the platform has no interest in shutting out developers or making things difficult for them. Everything everyone is doing is to make the world a better place.

Second, and this is a but, everyone is also only acting locally. No one is really globally optimizing the customer experience. There’s no global usability test for the system. There is not an optimal solution that everyone us going for by using Goal Seek in Excel. In the end, each company/organization or even team within a big company is acting in their best interest. Yes, this is one giant collection of org charts shipping code.

This means that even though everyone is well intentioned, there is room for the platform to say “well maybe we need to be careful” or “maybe we should just require this”. From my past an example is pushing people for signed device drivers. Seems silly, but no one company saw this as something useful or interesting to do. The platform (OPK) requiring it was a tax on the system. It raised costs and reduced agility. It was even viewed as something to keep people focused on Windows. And all we wanted to do was reduce malware.

The App Store Debate: A Story of Ecosystems