Going where the money is

The bank robber Willie Sutton did not say, when asked why he robbed banks, “because that’s where the money is.” He did agree with the idea however saying “Go where the money is…and go there often”.

Regardless of it being apocryphal, this idea came to be called Sutton’s Law and is often taught to medical students. It’s similar to the notion of Occam’s Razor: when an obvious or simple answer competes with an obscure or complicated answer, pick the obvious one first.

These are sound analytical rules of thumb. When thinking about what products and services could arise in the immediate future, those most obvious and with fewest assumptions should be put forward first. The what part is relatively easy. The tough question is more about when will they emerge?

We now know that Apple will announce new products on September 9th1. This gives us an idea of when something will happen, answering the tougher question. It leaves the simpler question of what will emerge.

I put forward my predictions as follows:

• Regarding iPhone, a tweet on product mix and pricing.
• Regarding an “iWatch”, an answer to a question from Eric Jackson.
• Regarding the potential for wearables, a post on the subject.

One more item has surfaced on the potential of payments processing which I want to address now.

Handling payments, to me, is a perfectly plausible activity for Apple mostly because the company has made quite a few comments on the value of their “customers with credit cards” and the effort that went into Touch ID (which seems to be extravagant relative to the value of rapid unlocking).

But one word of caution: if Apple does enable payments it’s important to realize that being a (payment) bit pipe is not a particularly profitable business. It will undoubtedly bind value to the iOS devices which make it possible, but I don’t think there will be a direct capture of profit from the transactions themselves.

Profit needs to be in proportion to the value delivered. When that value is marginal convenience it is worth something but it’s not a huge something. It is a marginal something.

You might disagree pointing out that payments are big business and banking bigger still. But those businesses are not hired to simply funnel low friction payments around. They are proxies for trust and complex risk management.2

So for a company that facilitates the payment clearing system, the margins are likely to be very thin and with costs being non-zero it may be nearly a wash. The real impact of the decision to support payments will be in the aura surrounding the iOS ecosystem. An aura which will glow intensely.

The idea of untold riches coming from “being in the payments business” is rather like the bank robber’s dream of being where the money is. It is tempting to think that handling lots of money must result in wealth. However consider the value of Brink’s. Net income of $57 million on $4 billion revenues and $1.3 billion market cap.

Reality is that wealth comes from the creation of value not from its transport.

1. I’ll be there and will report via Twitter and a special session of The Critical Path podcast [↩]
2. Nota bene: this trust could be commoditized with crypto currencies and blockchain technology making these giant businesses perilously smaller. [↩]