Financial technology startups emerged as serious challengers to financial services in 2017


All the attention in financial services this year has gone to the newest kids on the block: cryptocurrencies. With Bitcoin now eclipsing $15,000 and Coinbase adding more than 300,000 users in one week alone, it’s easy to see why.

While cryptocurrencies stole the spotlight, a clutch of companies were quietly working behind the scenes to slowly bring the financial services establishment to its knees. It may turn out that these startup entrants of the last several years will prove to be the more relevant disruptors.

Earlier this year the “FinTechs” hit a massive milestone, one that very few people noticed but which must certainly be keeping senior execs at banks, credit card companies, and other institutions up at night. In June of 2017, for the first time in history, the top 10 publicly traded U.S. FinTechs surpassed $100 billion in total market capitalization.

Now that number is over $130 billion, and there are another dozen privately held FinTechs in the U.S. collectively valued at almost $35 billion. Together this is nearly $175 billion of value that didn’t exist 20 years ago. Other recent artifacts that must surely be unsettling for the incumbent financial institutions include: Paypal’s market cap surging past that of Amex and Robinhood quickly closing in on E*Trade in terms of total number of accounts opened — in just three years.

Definition: Matrix considers “FinTechs” to be (a) technology-first companies that leverage software to compete with traditional financial services institutions (e.g. banks, credit card networks, insurers, etc.) in the delivery of traditional financial services (e.g. lending, payments, investing, etc.) or (b) software tools that better enable traditional finance functions (e.g. accounting, point-of-sales systems, payments, etc.)

Introducing the Matrix U.S. FinTech Index

With an eye towards tracking the progress of disruption in the financial services space, we’re excited to release the Matrix U.S. FinTech Index. This index is a market-cap weighted index that tracks the progress of a portfolio of the 10 leading public FinTech companies listed above over the course of the last year (beginning in December of 2016). For comparison, we have also included another portfolio of the 10 largest financial services incumbents (companies like JP Morgan, Visa and American Express) as well as the S&P 500 index.

As seen below, the Matrix FinTech Index shows a clear win for the FinTechs. To their credit, after a rough year in 2016, the incumbents rallied in 2017 to perform slightly better than the S&P 500 Index — yielding 29{36b96a1f853ebc4400789db5a6750c1e4fd7f7ac668ceaf8c757e025080de237} returns over the one year period (compared to the 20{36b96a1f853ebc4400789db5a6750c1e4fd7f7ac668ceaf8c757e025080de237} returns by the S&P 500 Index).

The FinTechs, however, have blown by this, delivering 89{36b96a1f853ebc4400789db5a6750c1e4fd7f7ac668ceaf8c757e025080de237} returns and handily beating the incumbents by 60 percentage points. If you had invested in the Matrix FinTech Index a year ago, you would have almost doubled your money in just one year.

This Is Just the Beginning

Unfortunately for the incumbents, the outlook only worsens from here. The “old-guard” has long been suffering from inflexible back-end systems, antiquated ways of serving customers, and human intensive processes. They’re also increasingly at risk of losing trust with consumers as a result of very public failures like the Wells Fargo scandal and the Equifax data breach.

In the next 10 years, we predict that the incumbent’s portfolio returns (shown above in red) will drop well below the S&P 500 as they continue to disappoint end consumers and cede ground to the FinTechs.

Meanwhile, the FinTech takeover has just begun—financial services in recent years has been 7-9{36b96a1f853ebc4400789db5a6750c1e4fd7f7ac668ceaf8c757e025080de237} of U.S. GDP (i.e. trillions of dollars). In the decade to come, we will see the Matrix FinTech Index continue to climb to new heights as the existing FinTechs surge in value and as we add many more FinTechs to the Index. In fact, the nearly 100{36b96a1f853ebc4400789db5a6750c1e4fd7f7ac668ceaf8c757e025080de237} growth we’ve seen in the last year is the bottom end of the hockey-stick, just hitting the inflection point. By 2027, as we accelerate up the hockey stick, every aspect of financial services, from payments to lending to investing will be dominated by FinTechs.

Move over financial services – the FinTechs are here and they aren’t going anywhere anytime soon.

Featured Image: Thomas Trutschel/Getty Images

The attack of the SuperFakes

S

even years ago, watch fan Andrew Dakin bought a Movado watch on eBay for $500. It looked like a mint timepiece, well-maintained and classically styled. He had just started collecting watches, so he was happy to get a deal on a unique and valuable timepiece.

“At that point I was probably like 30 watches in so I thought I knew what I was doing,” said Dakin, describing his early collecting experiences.

Many first-time collectors like to create huge collections of watches, picking up cheaper pieces to get a feel for the market. This Movado was something special, however. It was made by a classic maker made famous by their ultra-minimalist Museum watch, a piece featuring a dot, a noon and nothing else. The watch arrived in the mail and it looked legitimate. He wore it for a while and then took it to a jeweler to see how much it would be worth if he cleaned it up and resold it.

The jeweler took the watch to the back of the shop and came back upset.

It was a fake. A very good fake.

Ebay and other online markets have always trafficked in fakes. From fake memory cards to swap meet Louis it’s hard for the average online consumer to tell if they are buying real products and often they don’t care. But in the case of watches like Movado, Omega and Rolex, it’s getting harder to tell the real from the replica and the stakes are surprisingly high.

“I would have worn and eventually sold it thinking it was real had I never compared to a real one,” said Dakin. He was impressed.

“Once you see a good fake it’s actually scary to think about how many people are walking around with a fake watch that they think is real and they will sell or pass down to someone thinking it’s real,” he said.

Fake watches have always plagued the horological arts. But these fakes – created so that they can sell for a maximum price to unsuspecting buyers – are getting better and better. In fact, the Movado Dakin bought seven years ago was probably far from the best available fake on the market.

Welcome to the strange world of SuperFakes, a new breed of fake watch that, thanks to advances in manufacturing and 3D printing, are often indistinguishable from the real thing. Fakers make these pieces for pennies and can sell them for thousands, often duping first-time collectors and experienced resellers with their high-quality creations.

Fakes have been around as long as watches have graced the pockets and wrists of folks who would pay for them. In the 1800s, boulevardiers considered American watches made by Hampden and Elgin to be the best in the world. Made in bulk using new machining techniques, American watches beat Swiss and French pieces in quality and reliability. Swiss watchmakers found themselves at a loss. They depended on untrained laborers and older milling and cutting machinery, and they found their pieces were getting steadily worse.

Swiss watchmakers had a plan, however. They would use American techniques to create exact copies of American watches.

The most frequently duplicated pieces were popular “railroad watches,” the saucer-sized pocket watches carried by old-timey train conductors. Rather than copy the pieces wholesale, the Swiss depended on marketing slight of hand to sell their wares: They changed popular brand names slightly to avoid detection and simply sold them alongside the superior American pieces. Illinois-made Elgin became the Swiss-made Elfin. Marion Watch Company became Marvin (which, in turn, investors revived as a luxury brand in the 21st century), and “A.W.W.Co” became “B.W.W.Co.”. These fakes, far from being the worst of the lot, were designed to copy the superior American wares in every way.

This habit fell away as Switzerland caught up with and surpassed American manufacturers. Now, however, it’s the Swiss suffering from the same fake fate that befell the American brands.

The fakes industry – created as a reaction to the changes in engineering techniques in the 18th and 19th centuries – resurfaced in the 20th century when watchmakers began selling luxury watches made of steel and brands like Rolex gained prominence. Because it was far easier to fake a watch in plain metal than in a gold, Canal Street in New York became a veritable wholesale market for fake Presidents and Daytonas. Many of these reproductions were laughably bad with poorly placed logos, fake chronograph pushers, and even quartz movements in watches that were supposed to be completely mechanical and “hand made.” But that didn’t stop buyers from snapping up these “faux-lexes” as status symbols.

These obvious fakes have slowly given way to fakes that are so uniquely well-made that they are almost indistinguishable from the real thing.

The Federation of the Swiss Watch industry says Switzerland produces 30 million watches a year. They estimate that fakers build 1.6 million a year, ensuring that your chances of finding a fake in the wild are fairly high. The new manufacturing technologies that make it easier for Chanel to make ceramic cases make it easy for fakers to produce something similar, if not identical, to the real thing. It is trivial to get these fakes from the factory to the street, leading to a flood of fake watches that are almost indistinguishable from real watches to the average consumer.

Hamilton Powell sees the flood of SuperFakes almost every day. His company, Crown & Caliber, specializes in reselling pre-owned watches. Owners send in their watches for appraisal and receive a check. Crown & Caliber’s in-house watchmakers clean and regulate the pieces and then sell them to collectors who want a deal on popular pieces like Rolex Submariners, Omega Speedmasters, and Panerai Submersibles. The company has processed 15,000 fine watches and has seen hundreds of fakes.

“Historically, less than 5 percent of the watches that we authenticate are fake,” said Powell. “At one point this number was as high as 10 percent.” However, the numbers are growing.

Powell is pragmatic about the fakes market. It’s inevitable.

“E-commerce has been a blessing and a curse,” he said. “The blessing? The world is at your fingertips, and we can now find and receive goods faster than ever before. With that, there are legitimate resale platforms out there, making it easy to find and access a wide selection of luxury timepieces. These sites have built their business on authentication and quality. However, there is a market of people who are selling fake goods passed off as real.

“Technology advancements and access are the culprits. To start, access to high-tech machinery is more prevalent than ever,” he continued. “So, what could have been a rare or cost-prohibitive piece of equipment is now available to more people.”

F

akes come in all shapes and sizes. Rolex is the most faked with copies of Submariner, Daytona and Datejust appearing regularly. Breitling and Omega are next with Super Avenger, and the Seamaster fakes hitting the market daily. Interestingly, fakers have copied almost every Panerai model thanks to the simplicity of the watch. In fact, fakers have copied many of the specific Panerai hallmarks, including specially designed internal parts designed to prevent faking.

“Panerai SuperFakes are some of the best out there given the minimalism on the dials,” said Powell.

These watch brands are entry-level in the strange and pricey Pantheon of luxury watches. However, said Powell, less popular and more expensive makers like Chopard, Piaget and Hublot are seeing fakes hit the market, a testament to the broad popularity of once-exclusive watch models. While actually quite difficult, fakers spend extra time and money on creating realistic SuperFakes because the stakes are so high.

Emma Monks, head of social media risk at Crisp, a brand-safety adviser, says that fakes worth “nearly half a trillion dollars” hit the market yearly.

“It’s not just an issue of hitting the luxury brand’s bottom line, though. The reputational damage and loss of consumer trust are massive problems,” she said. “Counterfeits are often of inferior quality leading to, at best, an influx of customer complaints and, at worst, injury from dangerous fakes. If the buyer believed the product they bought to be genuine, even after they approach the brand and discover it’s a fake, the lingering bad taste from the experience can sour their trust and appreciation of the brand.”

In other words, fakers can make thousands of dollars on a good fake rather than a few dollars on an obvious fake. In fact there is an entire world of ”replica watches” that sell many exact copies of popular watches. This strange underworld is similar to the replica car market where fans buy supercars for $20,000 because they are “reskinned” Toyota Camrys and Corollas.

These replicas live in the murky world of dedicated fandom if you can convince an eBay buyer that the Rolex they are buying is authentic a $300 replica turns into a $5,000 jackpot.

“The high price-point of luxury is what appeals to these counterfeit craftsmen,” said Powell. “They can make a lot of money without a lot of investment into each piece.”

Thanks to a rise in the vintage market, fakers can also turn old watches into Rolexes and Omegas by replacing parts like faces, hands and movements. In fact, some fakers create real-looking parts on authentic equipment, a wild extravagance that is well worth the time and effort. Some fakers also create frankenwatches, pieces that use real parts to create a watch that is more valuable and collectable than the original piece.

“When a brand hits a rough patch, they will sometimes sell off some of their equipment,” said Powell. “This allows people to create inauthentic parts made on authentic machines.”

How do fakers make these watches so realistic? They begin by choosing an easily reproducible design. Take these Panerai Luminors, for example. The real model, on the right, would be indistinguishable from the fake on the left to the untrained eye. The font and hand style look quite similar and only small clues – the thickness of the hands, the quality of the illumination – would give away the trick.

The trouble continues inside these pieces. In the photo above, the piece on the right is the fake. Compare it to the more austere but real movement on the left. The fake movement, a copy of the Unitas 6497, has been engraved with repeating logos and “beautified” with a few unique additions to an otherwise generic movement.

This exuberant modification is designed to through the unwary off the trail. After all, a storied watchmaker like Panerai wouldn’t put such a boring movement into a $10,000 watch… or would it?

T

echnologies like 3D printing are improving fake manufacturing, as well. While not everything can be 3D-printed, metal sintering and CNC machines let fakers create unique cases using powerful, high-resolution 3D printers. But there is still a great deal that needs to change in order for fakers to truly 3D print fake pieces.

“SLS type of metal parts are too porous and have a matte finish,” said Jon Buford, a 3D printing expert in Hong Kong. “For the most part, the precision isn’t there for the feature size. You are probably more likely to be able to do a micro-CNC (subtractive) type of process to make things and have the same output as the traditional processes. Another possibility would be to do additive 3D printing process and then do precision subtractive processes to clean them up.”

High end fakers aren’t just effecting watchmakers, however. Fakers are taking the tricks they learned in manufacturing to other products. A few months ago Benjamin Saks of Kerfcase needed a copy of an iPhone X to test a new case model. They visited the web and found just the thing.

“Since apple announced in September but the iPhone X didn’t drop till November This gave us a lot of time to look at the drawings and photos of the phone, but I really wanted one in the shop to test,” he said. “I had looked around on the typical places. Alibaba and AliExpress have shady dummy phones, in bulk, but it’s always a crapshoot. I thought, hey, Amazon has everything. Literally. Maybe not for the best price, but it was worth a shot. So I did a simple search for ‘dummy iPhone’ and found this.”

It was a near perfect replica of an iPhone made with extremely high-quality components.

“It has a steel plate inside the injection-molded ABS frame. There is glass on the front and back (thin) and buttons with de-dents so they click. The port has nothing in it, and the speakers also are just holes. A close inspection would let you figure out it is a fake, but if left on the bar at your favorite watering hole, it would for sure get swiped,” he said.

“It is incredible that a whole industry exists to make products like this. The quality of the molds is very high – ejector pins are clean, seams are tight and the hand assembly that has to be done is amazing for something that likely costs a few bucks to manufacture.”

This frustrates everyone in the manufacturing industry.

“Detecting and combating counterfeiters is not easy,” said Monks. “Many are operating out of countries where prosecution may be impossible, and that gives them the confidence to flaunt their products on image-driven social platforms such as Instagram. Taking action against their accounts is digital whack-a-mole; the counterfeiter generally has dozens more accounts already created and ready to activate in order to avoid disruption to their trade.”

Ultimately these fakes end up hurting consumers and forces makers to dedicate precious resources to fake reduction rather than innovation. As wristwatches fall in popularity there is less to be made in the luxury watch market, making it all the more important for storied brands to fight back against fakes.

Whether or not you see the value in buying a $12,000 watch that can be faked for $5, watchmaking is a rapidly diminishing art and watchmakers are slowly leaving the field, disheartened by consumers who are happy to tote around a $300 fake Rolex over a real piece with history, provenance, and quality. Still, sometimes fakes make it through to consumers who end up disappointed that their amazing watch isn’t quite as amazing as they thought.

“We offer all of our customers an ‘out’ – we send them an empathetic email apologizing for having to be the bearer of bad news that the watch they sent us was a replica, we don’t use the word fake,” said Powell. “Most of these people never contact us back. The ones who do are generally really embarrassed and apologetic because they had no idea.”

Do VC woes extend to portfolio companies? For Rothenberg, probably not


As VC brands go, Rothenberg Ventures has seen better days.

The firm built up a reputation as an up-and-coming early-stage investor a few years ago, based on bold bets on virtual reality, a flashy marketing strategy and its well-connected namesake and founder, Mike Rothenberg. Between 2012 and 2016, the San Francisco firm participated in funding rounds for more than 100 early-stage companies, commonly investing alongside top-tier VCs.

But Silicon Valley soured on Rothenberg Ventures last year, amid charges that its founder spent beyond his means, failed to pay staff and misappropriated investor funds for a side project. Lawsuits ensued, along with a name change (since changed back), an SEC investigation and a lot of unflattering profiles casting the now 33-year-old Rothenberg as a sort of modern-day Gatsby.

So it hasn’t been a good year for Mike Rothenberg. But what about the Rothenberg Ventures portfolio?

In an effort to see how firm- and investor-specific scandals might affect portfolio companies, Crunchbase News took a look at the performance of Rothenberg Ventures-backed startups. We looked at exits and up rounds, as well as closures and apparent down rounds.

Overall, the Rothenberg portfolio seems to be doing well. It’s seen multiple exits at what appear to be favorable returns, a lot of up rounds and not too many high-profile flops. It probably helps that most portfolio companies had a number of other investors. The vast majority that raised cash from Rothenberg Ventures did so as part of a larger investor syndicate, and those startups weren’t relying on the firm as a major provider of follow-on capital.

With that in mind, here’s what the portfolio looks like now.

Exits

At least 13 Rothenberg-backed companies have gone on to exit, according to Crunchbase data. Point-of-sale systems company Revel Systems sold a majority stake to private equity firm Welsh, Carson, Anderson & Stowe.

All of the exits were through acquisitions, and most of those exits involved early-stage companies selling for undisclosed amounts. Typically, Rothenberg was a non-lead investor in a syndicate for these startups. Most had raised a few million dollars prior to exit, though a few had raised larger rounds.

A couple of acquisitions involved companies that had already stopped offering their services.

Generally speaking, if an early-stage company that is not known to be in distress gets acquired, backers make money. This seems to be the pattern for most of the Rothenberg portfolio company acquisitions to date. The list includes Sweet IQ Analytics, a provider of local search tools that sold to Gannett; Payable, a provider of software for paying contractors that sold to Stripe; and Propeller, a platform for updating apps that sold to Palantir. One of the few deals with a disclosed price was a celebrity-heavy investment, Hello Giggles, a women-focused online media startup that sold to Time for $30 million in 2015. (You can view the full list of acquisitions here.)

A couple of acquisitions involved companies that had already stopped offering their services. AltspaceVR, a social VR platform closed over the summer, was snapped up by Microsoft in October. And Luxe, a valet parking app, had also shut down before it sold to Volvo in September.

So far, the firm’s big bets on virtual reality have yet to produce lucrative exits, though some have raised follow-on rounds, which we’ll look at next.

Up rounds

Seed investments take a long time to mature, so it’s not surprising to see the majority of viable portfolio companies still in follow-on fundraising mode.

To date, the Rothenberg portfolio has a number of companies that have gone on to raise much larger follow-on rounds, presumably at marked-up valuations. We assembled 30 of them here.

The portfolio includes some unicorns. Mike Rothenberg said there are three companies in the portfolio that have surpassed the $1 billion valuation mark, but did not name them. It seems clear looking at the firm’s list of investments that one unicorn is RobinHood, the zero-commission platform for buying stocks, which raised its last round at a $1.3 billion valuation. The firm is a non-lead investor and one of at least 28 known backers.

The biggest exits and biggest flops are probably yet to come.

It’s unclear whether SpaceX counts as one of the unicorns. Rothenberg invested in a 2012 Series D, but SpaceX already had a multi-billion dollar valuation at the time, (although its value has since multiplied). We couldn’t identify an additional potential unicorn, so probably we either missed it or it’s a company whose billion-plus private valuation hasn’t been publicly disclosed.

There were also a number of companies that raised early-stage funding from Rothenberg that have secured significantly larger follow-on rounds in the past couple of years. Some of the bigger ones are Patreon, an online platform for sponsoring artists; 8i, a VR software developer; Andela, a tool for finding African tech talent; and Rinse, a garment care service.

Flops

Most seed-stage startup efforts don’t end in success, so we’d expect that any firm operating this stage for a few years would have some flops.

Rothenberg is no exception. Crunchbase turned up a few portfolio investments that raised small sums a few years ago and have since closed, like Butter, an app for making new friends; Buttercoin, a Bitcoin startup; and Bloodhound, an app for managing leads at trade shows. There are certainly more, though putting together a full list is challenging, as many startups prefer to quietly fade away rather than officially announce their closure. Also, seed investors commonly don’t disclose all their micro-investments, particularly for stealth startups.

The firm’s most high-profile potentially troubled asset is River Studios, a virtual reality production house Rothenberg launched in 2015. The investment came under fire last year, with Wired and other publications reporting that River hadn’t been properly green-lit by investors, lost money and was behind on rent.

The current status of River Studios is unclear. Its blog hasn’t been updated since mid-2016, and there are no open positions listed on its site.

Takeaway

Overall, the takeaway seems to be that Rothenberg Ventures’ downturn hasn’t extended to its portfolio companies in a meaningful way.

The firm’s performance seems similar to those of other funds of a similar vintage and approach. That is, it’s largely what we would expect from a well-connected Silicon Valley angel or VC participating in large investor syndicates for hot seed and early-stage startups in hot sectors. Rothenberg was somewhat of an outlier in its heavy focus on virtual reality, a sector that continues to attract reasonable funding but has yet to produce fat exits. VR hasn’t produced any big outcomes for Rothenberg, either — yet.

Given the long-time horizons that seed-stage startups require to mature, however, it’s still early innings for the bulk of the portfolio. The biggest exits and biggest flops are probably yet to come.

Featured Image: iStockPhoto / honglouwawa

Apple Pay Cash launches in beta today, letting you send and receive cash in Messages

Apple is soft launching direct person-to-person payments in an iMessage today with the Apple Pay Cash beta. The feature, which was announced earlier this year, allows you to send and receive cash inside the Messages app on iPhones.

The program is launching in public beta today on iOS 11.2, and you can opt in using the iOS Public Beta program here. Once you’ve updated, you’ll see an Apple Pay button in the apps section of Messages that allows you to initiate a payment. Payments can also be triggered by simply asking for money in a message or tapping on a message sent by someone else asking for money.

The beta is available for US customers only with iOS devices on 11.2 or later and with two-factor authentication set up on their Apple ID.

The source of funding is any debit or credit card you have currently added to Apple Pay. Apple will charge no fees for money that is funded via debit cards and an ‘industry standard’ fee for credit cards, likely in the few percent. 

The first time someone sends you money, you will opt in to accept it and be issued a new virtual Apple Pay Cash card. This card can only be used to send money or pay for things via Apple Pay, so it’s not a completely discrete “credit/cash card”, but it functions as one as long as you’re within Apple Pay. The reason for the card is multi-faceted, but one big one is that this allows Apple to fund payments to the card immediately. This means that when you get paid via Apple Cash, you’re going to be able to spend that money right away as long as it’s via Apple Cash to someone else or via Apple Pay at a retailer or website that accepts it.

Apple is working with Green Dot to power the financial mechanics of Apple Cash. There’s obviously some small float involved here on instant transactions.

The card also functions as a transaction log for all of your Apple Pay purchases on the web or at physical locations. Just tap on the ‘i’ icon to flip the card in Wallet to see them. You can also add money to the card from this screen from any funding source. Touch ID, passcode or Face ID are used to verify any Apple Pay Cash transaction.

When you get money for the first time, you’ll tap on the payment bubble to accept terms, the card will get generated and put into your wallet and the balance will instantly appear on that card. From there you can use it or transfer it out to your bank (with the normal transaction times).

This isn’t a card that anyone can just ‘use’ like a credit or debit card though. If, for instance, you’re splitting rent and your roommate pays you for their half you have the following options:

  1. If your landlord uses an iPhone and will accept it you can send that on directly to them via Messages
  2. You can transfer it to your bank account and pay them via check or debit

Otherwise, they’d have to be an Apple Pay merchant for you to just boop your phone and pay them on a terminal or via the web.

I’d be remiss if I didn’t mention that there are already several very widely used person-to-person payment systems out there like Square’s Cash, Venmo, AliPay and WeChat Pay. Apple is certainly doing a job of ‘validating their space’ with this launch, but I’d expect some press from those firms with a variety of vanity metrics and differentiating factors like “cross platform,” “social” and “popular with youths”. I personally really like Square’s Cash a ton and my close group has long used it to pay each other back and balance our friendship books. It will be interesting to see how Apple Pay Cash affects that behavior among people who have mixed iPhone/Android usage.

Sending and receiving works pretty much as you’d expect. If you ask for money in a text, say ‘hey you owe me $10 for movie tickets’, the other party can tap on the underlined dollar amount and send it. You can also use the Pay Cash app in Messages to send a formal request, they’ll see that and can tap to pay. When they send it you’ll get a notification and you tap on that to accept the money. You can choose to automatically accept payments or not in settings. The first time you use it you’ll have to accept the money within 7 days. 

You can also send money directly from the Contacts app in iOS by tapping a contact and then the $ icon below their name. Siri, of course, is also involved and you can use it to send money or request money from a friend. Saying “ask Sally to pay me $10 for breakfast” will send that message via Messages and they can tap and pay.

Apple Pay Cash provides the vital person-to-person leg of Apple’s payments stool. The journey began back in 2012 when it introduced Passbook, a place to hold airplane tickets and other coupon-type stuff. Even back then, it was clear where Apple was headed with this. I remember writing extensively about the way Apple was building up to offering a payments platform:

Say Apple hooks up an iPayment card of some sort to your iTunes account and tucks it into Passbook. Perhaps you enter a passcode to get into Passbook, then type in your Apple ID and it generates a 2D code, then you scan it, and the code expires after a billing has been made to it. Or the URL can require a passcode, generating a new link for each transaction…Unless, and this comes back to trust, Apple required a direct connection to your bank account to enable your Apple ID for direct payments. This would be a hard sell, but it would be making that pitch to people who have already trusted credit cards to it for some time, so it’s not as outlandish as you think.

Back then, we were still in a big trust deficit hole with mobile payments (and QR codes are still finding their place) but the years since have proven that people are willing to pay with their phone. An impressive recent stat notes that 50{36b96a1f853ebc4400789db5a6750c1e4fd7f7ac668ceaf8c757e025080de237} of all US retail locations now accept Apple Pay and that 90{36b96a1f853ebc4400789db5a6750c1e4fd7f7ac668ceaf8c757e025080de237} of all mobile contactless transactions in markets where it is available are done with Apple Pay. Clearly, people get that money and mobile go together, and they’re becoming more willing to treat a digital wallet like their physical wallet.

As I put it in 2012:

The fact of the matter is that people, by and large, are not ready for mobile payments. I’m probably not even ready and I’m an early adopter. This is why other technologies like NFC haven’t taken off for Google or other mobile makers that have tried to make it happen.

There is a trust threshold that hasn’t yet been breached by any major company, although services like Square are making headway. Apple is uniquely positioned to take its current cachet with regards to credit cards and build on that through the redemption of passes and gift cards through Passbook. Once it has this kind of trust, it can use NFC hardware in a future phone to further expand its payment options.

Now that we’re here, you owe me $10.