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I heard the idea that Apple should buy Discover and thought there was no way… Apparently Discover has a market cap of “only” $22 billion. $30 billion or so wou

I heard the idea that Apple should buy Discover and thought there was no way… Apparently Discover has a market cap of “only” $22 billion. $30 billion or so would definitely do the job; and that’s only, what, less than a quarter of Apple’s cash reserves? Seems almost… cheap for buying an entire freaking payment network.

tristor 3y ago
A payment network nobody uses, which is why it’s cheap. The most important thing about a payment network are its network effects.
- et-al 3y ago
  Eh, I feel like with the JCB and UnionPay alliance, you have a better chance of using Discover abroad than American Express (not to mention AmEx's higher merchant fees).
  - wkat4242 3y ago
    Those fees are the reason merchants in EU don't want to take amex. I hate my work for saddling me with an Amex company card (in my name) and requiring I pay all my business expenses with it. In Eastern Europe and even Paris (taxis!) they will laugh in your face or at the very least the machine is suddenly "broken". At least give me a card that actually works.
- ta1243 3y ago
  > The most important thing about a payment network are its network effects. Quite Visa 500b Mastercard 380b Amex 115b
  - lxgr 3y ago
    What does revenue have to do with network effects? On the contrary, if Apple wants instant and almost ubiquitous merchant acceptance, it would make much more sense to buy a low-volume but wide-reach network than one that's generating lots of revenue from fees, simply because it would be much more capital intensive to finance.
    - ta1243 3y ago
      Nobody takes discover, as evidenced from their market price of 1/20th of that of Visa.
      - lxgr 3y ago
        What market are you talking about? I know a single store in NYC that accepts (credit) cards but not Discover. And as explained above, market price is an extremely poor proxy for network reach. Economic success as a payment network takes more than just reach; it’s necessary, but not sufficient.
- snazz 3y ago
  It's pretty widespread in the US. Looks like a tiny fraction more merchants accept Discover than Amex (according to https://wallethub.com/answers/cc/american-express-vs-discover-2140663734/ https://wallethub.com/answers/cc/american-express-vs-discove...). But acceptance is definitely poor outside the US compared to Visa and Mastercard.
  - tavavex 3y ago
    Yes, this is definitely it. Even in Canada, one of the more similar markets to the US, Discover seems to be extremely sparsely used - not even talking about the rest of the world. On the other hand, Visa and Mastercard can be used essentially everywhere - they're ubiquitous.
- lxgr 3y ago
  To a newcomer wanting to establish themselves, volume is irrelevant, reach is everything, and Discover is accepted pretty much everywhere in the US that takes cards at all. Abroad, they have "roaming" agreements with many other large networks such as JCB, China UnionPay, and Diners Club.
- bombcar 3y ago
  Is Apple Pay a separate payment network or does it piggyback on Mastercard? It requires special software on the PoS terminals.
  - snazz 3y ago
    As far as I understand, Apple Pay can be used with any EMV contactless card reader and it works with all four major card networks (perhaps more outside the US). From the merchant's perspective, it's the same as someone tapping their physical Visa/Mastercard/Discover/Amex at the terminal.
- tomjen3 3y ago
  Apple is pretty good at creating network effects.
ahnick 3y ago
Buying an operation like Discover doesn't seem radical enough. IMHO they need to do something like buy Flexa (https://flexa.network/ https://flexa.network/) and do a complete end run around the entire TradFi payment space. If they do that, then the margins will be much better and they will be well positioned for the future. Although Apple has so much money, they could take both approaches at the same time.
- lxgr 3y ago
  If building a new global payments network from scratch was that easy, why would Apple buy an obscure, tiny player rather than just building their own network from scratch? The value of an incumbent payment network isn't the technology or the revenue it generates; it's the network itself (in this case, in the form of merchant acceptance).
  - ahnick 3y ago
    Right, Flexa is already integrated in a number of PoS (Point-of-Sale) devices and providers (e.g. NCR), which makes its merchant acceptance fairly broad already. Once stablecoin legislation occurs, then being able to accept something like USDC will be more valuable for merchants and since there are no chargebacks to worry about then the merchant fees will be substantially reduced. Something like 1% vs 4-5%.
    - lxgr 3y ago
      > Once stablecoin legislation occurs You’re saying this as if it’s a “when”, not an “if”. > no chargebacks to worry about Chargebacks aren’t something to worry about for customers – they are the reason they feel comfortable giving new merchants a try!
      - ahnick 3y ago
        > You’re saying this as if it’s a “when”, not an “if”. Yes, the fact that Blackrock has now applied for a spot Bitcoin ETF makes it much more "when" than "if". > Chargebacks aren’t something to worry about for customers – they are the reason they feel comfortable giving new merchants a try! Correct, but merchants care a lot about how much they fork over to Visa/Mastercard for every purchase. Most people won't care about not paying through a credit card for small retail purchases. (e.g. People know if Starbucks got their order right and can have it fixed right there on the spot) People dealt in cash long before credit cards ever existed. The scenarios where you really care about the chargeback protection do not make up a majority of purchases and can be addressed through other mechanisms. IMHO, credit cards will still exist in the future, just in a greatly reduced capacity.

tristor 3y ago

A payment network nobody uses, which is why it’s cheap. The most important thing about a payment network are its network effects.

et-al 3y ago
Eh, I feel like with the JCB and UnionPay alliance, you have a better chance of using Discover abroad than American Express (not to mention AmEx's higher merchant fees).
- wkat4242 3y ago
  Those fees are the reason merchants in EU don't want to take amex. I hate my work for saddling me with an Amex company card (in my name) and requiring I pay all my business expenses with it. In Eastern Europe and even Paris (taxis!) they will laugh in your face or at the very least the machine is suddenly "broken". At least give me a card that actually works.
ta1243 3y ago
> The most important thing about a payment network are its network effects. Quite Visa 500b Mastercard 380b Amex 115b
- lxgr 3y ago
  What does revenue have to do with network effects? On the contrary, if Apple wants instant and almost ubiquitous merchant acceptance, it would make much more sense to buy a low-volume but wide-reach network than one that's generating lots of revenue from fees, simply because it would be much more capital intensive to finance.
  - ta1243 3y ago
    Nobody takes discover, as evidenced from their market price of 1/20th of that of Visa.
    - lxgr 3y ago
      What market are you talking about? I know a single store in NYC that accepts (credit) cards but not Discover. And as explained above, market price is an extremely poor proxy for network reach. Economic success as a payment network takes more than just reach; it’s necessary, but not sufficient.
snazz 3y ago
It's pretty widespread in the US. Looks like a tiny fraction more merchants accept Discover than Amex (according to https://wallethub.com/answers/cc/american-express-vs-discover-2140663734/ https://wallethub.com/answers/cc/american-express-vs-discove...). But acceptance is definitely poor outside the US compared to Visa and Mastercard.
- tavavex 3y ago
  Yes, this is definitely it. Even in Canada, one of the more similar markets to the US, Discover seems to be extremely sparsely used - not even talking about the rest of the world. On the other hand, Visa and Mastercard can be used essentially everywhere - they're ubiquitous.
lxgr 3y ago
To a newcomer wanting to establish themselves, volume is irrelevant, reach is everything, and Discover is accepted pretty much everywhere in the US that takes cards at all. Abroad, they have "roaming" agreements with many other large networks such as JCB, China UnionPay, and Diners Club.
bombcar 3y ago
Is Apple Pay a separate payment network or does it piggyback on Mastercard? It requires special software on the PoS terminals.
- snazz 3y ago
  As far as I understand, Apple Pay can be used with any EMV contactless card reader and it works with all four major card networks (perhaps more outside the US). From the merchant's perspective, it's the same as someone tapping their physical Visa/Mastercard/Discover/Amex at the terminal.
tomjen3 3y ago
Apple is pretty good at creating network effects.

ahnick 3y ago

Buying an operation like Discover doesn't seem radical enough. IMHO they need to do something like buy Flexa (https://flexa.network/ https://flexa.network/) and do a complete end run around the entire TradFi payment space. If they do that, then the margins will be much better and they will be well positioned for the future. Although Apple has so much money, they could take both approaches at the same time.

lxgr 3y ago
If building a new global payments network from scratch was that easy, why would Apple buy an obscure, tiny player rather than just building their own network from scratch? The value of an incumbent payment network isn't the technology or the revenue it generates; it's the network itself (in this case, in the form of merchant acceptance).
- ahnick 3y ago
  Right, Flexa is already integrated in a number of PoS (Point-of-Sale) devices and providers (e.g. NCR), which makes its merchant acceptance fairly broad already. Once stablecoin legislation occurs, then being able to accept something like USDC will be more valuable for merchants and since there are no chargebacks to worry about then the merchant fees will be substantially reduced. Something like 1% vs 4-5%.
  - lxgr 3y ago
    > Once stablecoin legislation occurs You’re saying this as if it’s a “when”, not an “if”. > no chargebacks to worry about Chargebacks aren’t something to worry about for customers – they are the reason they feel comfortable giving new merchants a try!
    - ahnick 3y ago
      > You’re saying this as if it’s a “when”, not an “if”. Yes, the fact that Blackrock has now applied for a spot Bitcoin ETF makes it much more "when" than "if". > Chargebacks aren’t something to worry about for customers – they are the reason they feel comfortable giving new merchants a try! Correct, but merchants care a lot about how much they fork over to Visa/Mastercard for every purchase. Most people won't care about not paying through a credit card for small retail purchases. (e.g. People know if Starbucks got their order right and can have it fixed right there on the spot) People dealt in cash long before credit cards ever existed. The scenarios where you really care about the chargeback protection do not make up a majority of purchases and can be addressed through other mechanisms. IMHO, credit cards will still exist in the future, just in a greatly reduced capacity.