In Apple's Q4 2014 earnings report, Tim Cook was asked by Shannon Cross of Cross Research what Apple's business model is for Apple Pay and whether it will, over time, become a standalone business, like iTunes. Or is it just incremental revenue? It was a great question, but it's neither of those. Here's what Tim Cook told Ms. Cross.
What we wanted to achieve with Apple Pay was first and foremost have an incredible consumer experience. So we focused very much on making it elegant and simple....we also wanted to focus on security and privacy. We see huge issues with the security of the traditional credit card system, and many people [corporations] that have entered mobile payments are doing so in such a way that they want to monetize the data, that they collect from the customers. We think, in general, customers do not want this... that they'd like to keep their data private. We want ease of use, security and privacy and maximize all three."
Mr. Cook went on to explain why Apple is headed in this direction, namely that Apple will sell more devices. "We think it's a killer feature." He also noted that Apple doesn't not charge the customer for the benefit. Also:
We do not charge the merchant for the benefit. However there are commercial terms between Apple and the issuing bank. ...We're not disclosing what they are.
Apple's business model for Apple Pay is becoming fairly obvious. It's not going to be a big money maker at first, and may never be. What Apple Pay does, however, is to create a business approach in which Apple's hardware and services form a platform of customer-centric services. That is, in contrast to so many other modern consumer electronic devices where the device coughs up data to the manufacturer and customer transactions are captured and analyzed, Apple is trying to create a safer and more secure future.
One can surmise that Apple Pay is just the beginning of a pipeline of products and services designed to delight and reassure the customer that that can conduct operations on the Internet safely. It will indeed be the "killer feature" of all Apple products, and Apple Pay is a mechanism to achieve that goal, not a get rich quick scheme.
In the past, and continuing now, Apple customers were happy to pay for a best-of-breed product, beautifully designed. In the modern Internet era, clearly Apple is also betting that customers will come to appreciate a customer centric design in every product and service, especially security and privacy. It's a good bet for Apple to make.