This Headline Changed My Mind About the Payments Industry (Apple Inc., Facebook Inc)

Much has been made of the potential disruption in the payments industry thanks to the efforts of Facebook (NASDAQ: FB  ) , Apple (NASDAQ: AAPL  ) , Google (NASDAQ: GOOG  ) , and others.

And while there is reason for optimism about its future, one headline made me take a step back to really consider the broader perspective.

The eye-opening thought
So, what prompted that? The following tweet:

And it led me to the article "Why Banks Should Be Watching Nintendo's Moves."

When you first see the tweet and read the headline, what do you think?

If you're anything like me, seeing it was from PaymentsSource, I immediately thought it meant Nintendo was going to be the next big-name company to announce efforts to dive into the payment landscape.

This would make it another popular name to add to the strikingly long list of technology titans who are either rumored to or openly discussing a move to expand into the payments industry.

Source: Flickr / Jun Seita.

After all, there were the reports about Apple preparing to dive into payments following the remarks from its CEO Tim Cook in January that, "the mobile payments area in general is one that we've been intrigued with, and that was one of the thoughts behind Touch ID."

In April, we learned Facebook too was preparing to dive into the payments landscape as it sought approval from regulators in Ireland to allow its users to save and send money through Facebook itself. And this is to say nothing of Google Wallet, which has operated for years and years.

Yet the headline about Nintendo caused me to take a step back as an investor.

The race to the bottom
It turns out, the article suggested banks should be watching Nintendo because it has been able to use near field communication (NFC) technology with great success in the gaming landscape. This is the same technology expected to bring about mobile payments. So, the article said banks need to follow Nintendo's lead and target younger people to see mobile payments really become widespread.

And in fact, Facebook, Google, and Apple were never mentioned.

But the thing is, when I added Nintendo to the list of the countless others either rumored to be, or already in, the payments industry, I immediately recognized the massive competition that now appears to characterize the payments industry.

Jamie Dimon. Source: Flickr / Steve Jurvetson.

This is part of the reason Jamie Dimon of JPMorgan Chase suggested, since his bank operates "one of the largest payments systems in the world," it is "going to have competition from Google and Facebook and somebody else." He said earlier this year the competition it faces from the technology companies means they "want to eat our lunch." 

In fact, I think this competition is great for consumers, as it will likely lead to innovation, exciting products, and countless other benefits.

But as an investor, I couldn't help but think of a Warren Buffett quote from his 2009 letter to shareholders, in which he said:

Charlie and I avoid businesses whose futures we can't evaluate, no matter how exciting their products may be. In the past, it required no brilliance for people to foresee the fabulous growth that awaited such industries as autos (in 1910), aircraft (in 1930) and television sets (in 1950). But the future then also included competitive dynamics that would decimate almost all of the companies entering those industries. Even the survivors tended to come away bleeding.

All signs point to rapid change and revolution to the payments industry in the coming years, but in Buffett's remarks above, we can see that while there will be distinct winners and losers, as investors, we should undoubtedly approach it with a high level of caution.

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  • Report this Comment On June 20, 2014, at 9:26 AM, bugnuts wrote:

    As I understand it, NFC has long-standing security issues preventing it from becoming a reliable standard for payments. I don't think the security needs of gaming are quite as high as those required by the financial industry.

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