There’s a lot of speculation about the recent move by Target to abandon its Visa co-branded card in favor of its own private label store version. Some say that it is ‘back to the future’ and the start of a trend that will end up bifurcating the card market: general purpose payment and store-branded cards with little in between. Others say that this is a “one-off” by a big player known for making bold moves in the space (e.g. remember the Target Visa smart Card, which Money magazine cited “about as useful as a Ferrari in a traffic jam?”). Here are a few observations on the topic.

Once upon a time, co-branded cards were the cat’s meow. They were highly attractive to issuers because they accrued higher interchange fees and gave issuers and retailers a way to capture affinity (and monetize it). You could find a card for just about any affinity…from your favorite store to your favorite school to your favorite charity. The theory of the case was that affinity = top of wallet.

As these programs proliferated, it suddenly became harder and harder for retailers to associate increased traffic (code for sales) to the use of these (more expensive) cards. And, now in the age of more stringent card regulations and tightening credit, it has also become more difficult for issuers to justify the economics that come with some of these programs, which sometimes includes revenue guarantees back to the co-branded partner.

So, it’s probably not that surprising that we’re seeing some flux in this whole space at both ends: retailers with the scale of a Target exploring their options, in spite of the receiveables’/risk management issues that plague this category of credit card, and issuers reducing the number of affinity cards that they support (e.g. Chase/Starbucks, Citi/Home Depot).

Target says that it’s done a bunch of research and suggests that it gets more incremental sales from customers who use its own store card, and will now have better economics to create additional incentives (coupons, for example) that will drive more sales, even after accounting for the risk (and also probably after discerning that it does not have to comply with some of the same “income verification” issues at POS that they once feared the CARD act would require.)

But, as they say, for every action, there is an equal and opposite reaction. Target’s announcement comes about two weeks after one made by American Express and Macy’s to issue a co-branded card, and a month or so after Chase and Hyatt announced a co-branded card program. So, it seems hard to make the case that store card programs are going the way of the hula hoop any time soon.

I don’t have any inside baseball information on this, but wonder if Target’s decision wasn’t based on an insight as simple as their consumers used their co-branded cards like a store card. By that I mean, that customers with a Target card, were, by and large, using the card at Target exclusively and not as their “top of wallet” outside of that store. If that is the case, then the economics for them could be far better if they managed their own program. And, if that’s the case, it might also imply that there might be more value created by the more “general” affinity card programs: charity, sports, and travel, where the incentives and the rewards accrue to the underlying passion, with better redemption options - and where there is real evidence of top of wallet placement.

I was talking with someone today about how sometimes the mistake the people make in thinking about innovation is trying to make it too big, when incremental improvements sometimes deliver a more compelling use case and better margins. Maybe those who see a much bigger story here are operating under a similar precept.

What will be interesting to watch is how moves like what Target and others in this space are doing affect loyalty programs and rewards/redemption options more generally. The new realities of the economic environment and financial regulation will force a new layer of decisioning about the one thing that really impacts what everyone in the ecosystem cares about – sales. I think we’ve just started to scratch the surface on the new ideas and implementations that will be used to drive affinity to cards, retailers and card products.

“Network effect” strategy – once you tip the scale, growth is (hopefully) soon to follow. At least that’s what long time platform master Microsoft has experienced and what Market Platform Dynamics,, Managing Director, Andrei Hagiu and assistant professor at Harvard Business School discusses. Hagiu, in a recently published NY Times article talks about “network effects” strategy and says, “As the Windows example shows, once a market with network effects tips to one dominant platform, then it is very hard to tip back.” But Hagiu goes on to say, “But network effects alone don’t necessarily produce tipping… Users must also perceive a high switching cost —in this case, in time and inconvenience — if they were to move to another social networking site [other than Facebook].”

Let’s begin with a puzzle raised by the previous session on who should regulate consumer protection. We heard from a specialist in administrative law that the design of the current method of bank supervision is the worst regulatory system she has ever seen. The fact that the regulators are paid by the banks (that is how the agencies receive funding) and that the banks can shop for their regulators (by choosing their organizational form) makes the regulators too beholden to the banks. These bank regulators, of course, also have responsibility for safety and soundness regulation as well as consumer protection regulation and in fact prudential regulation is their main job. So here’s the odd thing. How is it that 18 months after the start of the financial crisis we are focused on debating having a single consumer protection agency but not a single one that is focused on prudential regulation? Surely if there is problem here the fact that we have a dysfunctional regulatory regime for safety and soundness is far more serious—certainly for the long-term well-being of the economy and averting and dealing to this.

The New York University-Federal Reserve Conference on consumer protection has provided a lot of food for thought. We’ve all learned a lot. Consumer protection regulation is necessary. It could be better. And the speakers have provided many insights on how it could be improved. But let us face the reality of the times. A specific set of proposals have been put forward by the U.S. Department of the Treasury that would create a massive increase in the stringency of consumer protection and in particular would use the findings of behavioral law and economics—more on this later—to develop new regulatory approaches such as the use of plain vanilla products. Congress has taken up those proposals. The House has passed a bill which embraces some of what the Administration has proposed and rejects other parts. The Senate is now taking up this debate.

I have six points most of which challenge the premises of this present obsession with reforming consumer protection. Nothing in my remarks should be taken as suggesting that consumer protection in financial services is not essential or that it can’t be improved. The issue is simply why we are devoting so much attention now to a particular set of proposals when there are and have been far more pressing issues.

First, the Treasury Department proposed a sweeping overhaul of consumer protection for financial services for the wrong reasons. It is widely reported that the Administration pushed consumer financial protection legislation because they thought it would be the “locomotive that would drive financial reform.” The idea is that the folks back home couldn’t get why their representatives would be working on obscure things like clearing houses for credit default swaps. But they could connect with plain old consumer protection. Hey, who wouldn’t want to be protected? Since we’re not in DC perhaps I won’t be laughed out of the room for saying this is pretty cynical.

Second, Treasury wrapped consumer protection in the flag of the financial crisis. Yet there is no credible evidence that failures in the current system were a significant factor in causing the financial crisis. Many of the consumer protection problems that people point to are mainly the result of our collective delusion—the madness of the crowds—that housing prices would go up forever. There are numerous accounts of the causes of the financial crisis from varying ideological perspectives. Not one of them that I know of blames the financial crisis on failed consumer protection.

Third, instead of being the locomotive for financial reform, consumer protection has deflected attention from problems that really were at the heart of the financial crisis. Remarkably, the Administration proposed no significant reforms of Fannie and Freddie. The Administration came forward with nothing on dealing with the credit rating agencies. There’s widespread support among economists for introducing competition into that business. And then there’s the point I started with. How can it possibly be that we’re focused on consolidating consumer protection into a single agency but largely leaving prudential regulation untouched? Going into 2010 Congress is going to be spending a lot of its scarce time on consumer protection issues that had little to do with the crisis and which, while there are no doubt problems to be solved, are hardly urgent ones.

Fourth, the Treasury Department and Congress have proposed this sweeping overhaul of the lending industry at just about the worst possible time. A massive credit crunch is holding back the economy. New businesses that drive most of the job growth in the economy can’t get loans. Small businesses have had their credit lines slashed. Consumers who need to borrow money can’t. Now is the time to focus on policies to encourage lending. It is not the time to impose a new layer of regulations and costs that will make it more expensive and legally risky for financial institutions to lend money to people and businesses who want to borrow it. Congress made a huge mistake in passing the CARD Act last year. That legislation makes it harder for banks to lend money to the high risk borrowers who need help during these difficult times. I’m not defending the credit card industry here. They engaged in a lot of stupid practices that irritated many people. But the CARD Act was an example of Congress and the Administration cutting off the noses of consumers to spite their faces and get their votes. Some versions of the CFPA Act—and certainly the one proposed by the Obama Administration—promise to do the same and further hobble the economic recovery.

Fifth, instead of dealing with financial reform and getting ourselves out of the economic crisis it looks like a lot of energy is going to be spent on the CFPA bill. So let’s talk about the merits of the proposals. The CFPA is the brainchild of several law professors including Professor Warren who spoke at lunchtime. If you look at the articles that they have written you will see that the proposed CFPA is based on three propositions.

1. The first proposition is that consumers often do not make rational decisions. According to the proponents of the CFPA the government should both deter consumers from making the wrong decisions and they should prevent businesses from exploiting the mental defects of consumers—particularly the fact that they are confused, innumerate, and shortsighted. They believe that regulation should be based in part on principles and findings that have emerged from what’s known as “behavioral law and economics.” I’m a fan of behavioral economics. However, much of the work that proponents of the CFPA rely on is based on studies that find that consumers are shortsighted in a particular technical sense known as hyperbolic discounting. Recent work has found that those studies confused shortsightedness with risk aversion. People act in ways that seem impulsive and shortsighted mainly, it seems, because bird in hand is better than two in bush. As a result I don’t believe we have a sound basis at least at this time for moving from regulations that are based on market failures in the provision of information (the intellectual basis for the current system) to market failures based on people making systematically stupid or shortsighted decisions (the intellectual basis for the new regime). The behavioral economics field has produced a rich and interesting theoretical and empirical literature. One should exercise caution, however, in unleashing these “new products” on the American consumer before they are more fully tested and vetted.

2. The second proposition is that existing regulations are not sufficient to deal with these behavioral problems. Their rationale for “plain vanilla financial products” is that consumers need to be pushed towards products that are different than the ones they would ordinarily choose and that businesses need to be forced to offer different products than businesses want to offer to make money. Even if you buy into behavioral law and economics this should trouble you. There are a lot of reasons to doubt that government regulators would make better decisions than consumers. They sure didn’t in the events that led up to the financial crisis.

Professor Warren’s lunchtime discussion of her venture into developing a new credit card deserves some mention here. As I understood it she and her colleagues had developed a “clean card”—one that did not have any fees besides an annual fee an APR—and at least got some banks excited about considering it. They soon learned that banks couldn’t introduce the card profitably. She also mentioned that Citi had introduced a more “consumer friendly” card and gotten a lot of great PR out of it. They eventually pulled it from the market because few consumers wanted it. So Professor Warren sees a problem. Banks can’t make money from a “good card” (I think that her explanation is that one bank can’t unless others also offer it) and consumers won’t take a “good card” (I think the story her goes back to our mental deficiencies). So regulation is needed. I find this very worrisome. I don’t believe that even extremely smart and well-intentioned people such as Professor Warren should be put in the position of telling—or prodding—businesses to offer products they don’t want to offer to consumers who don’t want to take them. The CFPA Act put forward by the Administration was set up to do just that.

3. The third proposition is that consumers would get better help if financial regulation were the focus of a single agency and if that agency was not conflicted by also worrying about the health of the financial institutions it regulations. Maybe this one is right. However, I wonder if proponents of the CFPA have really thought about the possibility that a single agency could end up being captured by the financial services industry.

I would like to make one other observation on the basis for the proposed massive increase in consumer financial products regulation and making that regulation based on the findings of behavioral law and economics. The backers of these proposals bear the burden of proof of showing why it is needed and businesses and taxpayers should pay for it. Repeatedly, we are told by the proponents in their articles and in their talks today that consumers are being lured into taking bad products. But at the point where we would expect to hear how serious these problems are we hear vague words like “some”, “a number”, and an unquantified “many”. They have provided no evidence on whether 10% of consumers are harmed, 1%, .1%, or any other number. The proponents of the CFPA Act need to demonstrate that the benefits of their proposals outweigh the costs. That shouldn’t be based on anecdotes about consumers being hurt by buying bad products since that is true in every market.

Here’s my sixth and final point. If we are going to have a single consumer financial protection agency I would give it to the Federal Trade Commission. They are a well run government agency, have significant expertise in consumer protection, and have first-rate economists. While the Chairman serves at the pleasure of the president the commissioners are drawn from both parties and serve long terms. That would provide greater certainty and stability than having a director whose policies would reflect the party in the White House.ouseHouHou I would have a Bureau of Consumer Financial Protection which would report up to the Chairman of the FTC. That Bureau would have an advisory council that would consist of the prudential regulators plus the Chairman of the FTC. This would be a lot easier than setting up a new agency.

Today’s conference has provided a lot of food for thought. I’m not convinced that the result is a meal that we could safely serve American consumers.

* Lecturer, University of Chicago Law School and Executive Director of the Jevons Institute and Visiting Professor, University College London. This note is based on remarks made at the New York Federal Reserve Board-New York University Conference on Regulating Consumer Financial Products, January 6, 2010, New York, NY.

David Evans’ paper, Markets with Two-Sided Platforms, discusses how these two-sided platform businesses serve distinct groups of customers and need each other in some way. They provide these customers a real or virtual meeting place, and they facilitate the interactions between members of these customer groups. They essentially act as intermediaries between the two groups and create efficiencies by lowering transactions costs and reducing duplication costs.

Many significant industries are populated by businesses based on two-sided platforms. These include many traditional businesses, such as shopping malls, and most Internet-based businesses, such as social networks. Several economic conclusions that are relevant for antitrust analysis follow from the fact that these platforms are maximizing profits based on interlinked demand from the two sides. Prices on one side may be below marginal cost and possibly negative in long-run equilibrium. Many two-sided platforms in practice subsidize one side and earn profits on the other. Moreover, the standard result that the percent markup of price over marginal cost is inversely related to the elasticity of demand does not hold for either customer group.

In a recently published book, Platforms, Markets and Innovation edited by Annabelle Gawer, she explores the emergence of platforms as a novel phenomenon impacting most industries, from products to services. Industry platforms such as Microsoft Windows or Google, embedded within industrial ecosystems, have redesigned our industrial landscapes, upset the balance of power between firms, fostered innovation and raised new questions on competition and innovation.

For further information, see Catalyst Code: The Strategies Behind the World’s Most Dynamic Companies.

The Review of Network Economics Journal features “The Economics of the Online Advertising Industry” by David S. Evans.

This article considers the Internet-based technologies that are revolutionizing the global advertising industry and the public policy issues they engender. Will a single ad platform emerge or will several remain viable? What are the consequences of alternative market structures for a web economy that is increasingly based on selling eyeballs to advertisers?

Earlier this week the Federal Trade Commission had an amazing two-day workshop on How Will Journalism Survive the Internet Age? Rupert Murdoch, Arianna Huffington and many others presented. I gave a talk on Advertising-Supported Media and the Future of Traditional Journalism how the role of advertising and two-sided markets would affect the evolution of the newspaper and journalism business. My short answer was that the labor-intensive model of traditional journalism would shrivel—perhaps not die like the typewriter but be a lot smaller than it is today. You can go look at the presentation. I want to devote these comments to an issue that Rupert and Arianna were slugging out—can you charge for online journalism and can you increase the price of newspapers?

Murdoch already charges for online access to much of the content of the Wall Street Journal and wants to expand that to the rest of his content. Huffington says balderdash although more eloquently with a lot of pizzazz. Then one of my fellow economists chimed in saying that since online media is a “two-sided market” (See further writings, Free Economics and Catalyst Code) that the viewer side has to be free because that’s the side that’s needed more. My guess is that it is going to be a tough slog to get consumers to pay for content online unless it is stuff that provides real value like financial information. So I tend to think Huffington is probably right. But I’m not certain and wouldn’t be too quick to write Murdoch off.

Here’s why. People forget that the current advertising-supported media hasn’t always been the case and clearly doesn’t need to be the case. It doesn’t even need to be two-sided. The magazine industry in the 19th century was largely a single-sided business in which consumers paid real money for magazines that had no or few advertisements. Even in the 20th century, print media has made considerable revenues from subscribers even though this was enough to pay all the costs and return a profit. Print media by and large hasn’t been free. Television and radio ended up being free mainly for technical reasons. It was very hard to figure out how to charge people directly (the Brits imposed a license on television sets to support the BBC). Once cable came along there was a lot of content that people happily paid for. The web is more like print media than like over the air media: it is easy technologically to charge for content. For various reasons though that’s not the price point that web properties settled on. A lot of that has to do with the belief—perhaps ill founded—that by pricing at zero web owners got a lot of eyeballs and they could then figure out how to make money from them. Brilliant when it worked. Except it often didn’t.

As a matter of economics there’s nothing that says that two-sided markets have to be two-sided (see magazine example) or that one side always needs to get a zero price or even a break. People often talk about singles clubs to illustrate the skewed pricing—but, yes, ladies do get free beer sometimes but generally though, women might get a lower price they usually pay almost as much as men. It is also possible in two-sided markets to have multiple equilibria. So that makes one wonder whether the magazine industry flipped from one to another (high price to consumers to low price to consumers/high price to advertisers) and whether the internet just got stuck in a bad place.

I think the real problem now for Murdoch’s efforts is that entry barriers are so low on the web, there is so much free content, and there are enough people who can make enough money—or get nonmonetary benefits out of putting out content that newspapers have an awful lot of free stuff to compete with. Maybe it’s a bad equilibrium but it may be tough to get out of. But again I’m not certain and it is worth a shot.

The Federal Trade Commission will hold two days of workshops today and tomorrow, December 1st and 2nd to explore how the Internet has affected journalism.

Watch David Evans present live at 4:30 PM EST Today, December 1st.

The workshop will assemble representatives from print, online, broadcast and cable news organizations, academics, consumer advocates, bloggers, and other new media representatives.

It costs a bloody fortune to produce a television series like Mad Men. All those cast members, the period costumes, the smart writers. Right now production companies make these efforts profitable by doing deals with networks like A&E that sell advertising spots. Many of us are recording our favorite shows and watching them later, watching them on Hulu or perhaps YouTube, or getting them through NetFlix. And lots of people are just shifting their attention to all the content that we can watch on the web these days. Nicholar Carr’s column in the NYTimes Magazine bemoans the possible loss of high quality shows as we move from subscription services to free ones. And it goes without saying that as people do that, there is a possibility that people will be paying less attention to advertising.

Here’s what I think is going to happen. Almost all video content is going to be distributed over the web or perhaps, if something like Canoe in cable ever works, over some other technology that mimics most of what the web can do. Like most web content there’s not going to be any reason why people need to watch things at a particular point in time. This opens up the possibility that video can have targeted online advertising. So instead of wasting money on ads that hardly any viewer care about, advertisers will be able to target possible leads. Unfortunately, for those seeking a revenue stream there is such an explosive growth in the supply of online advertising inventory that can be targeted, even the prices for these are destined to plummet. I just don’t see how in the long run television networks or stations can expect to command anything like the prices they are currently getting from eyeballs. It will also become harder to charge for subscriptions for the reasons Carr mentions—why pay Comcast a bundle when you can see what you want when you want for a lot less.

Where I part company from Carr is I think all the nostalgia is misplaced. We have an industry that made a lot of products available on the back of the advertising revenue model. It won’t be able to do that going forward and a lot of what’s done now in the television and movie business will go the way of the typewriter I’m afraid. But remember, before we had this industry with “high quality” shows such as Mad Men, people actually read books and did all sorts of other things. We’ve now had several knowledge-starved generations who spent their time watching everything from Gilligan’s Island to the Real Housewives of New Jersey. The new web model will give us different kinds of content but there’s no obvious reason why it won’t generate pearls just like television has over the years.

I think it comes down to this: if there is something that people really value entrepreneurs will figure out a way to make it available. If people really aren’t willing to pay for the stuff on television then that tells us something. Likewise newspapers. My guess is that high quality content will appear for people that want high quality content. It will take time for this to happen and the end result will look a lot different than Mad Men. But then again no one would have imagined in the first half of the 20th century that people would be sitting in front of a screen watching anything like the modern television series.

Does taking plastic get people to spend more money? The card networks certainly think so and have often touted increased sales as one of the reasons why merchants should accept plastic and be happy to pay for it. My skeptical economist colleagues question this. They argue that the main effect of accepting cards is to shift sales from merchants that don’t accept cards. But once all the merchants in an industry—say all supermarkets or all liquor stores—take cards, that benefit goes away. And why, they argue, should plastic make people want to spend more money? What miraculous powers could plastic have to make people want to consumer more?

The experience of the New York City taxi industry should make the skeptics reconsider. It appears that taking plastic really does increase sales. And it doesn’t take much to figure out why.

The City of New York forced taxicabs to install meters in the back of taxis a couple of years ago. The drivers were initially recalcitrant, and even went on strike. But the City persisted. Now every taxi has a meter and drivers have relented on letting customers pay this way. In my experience relatively few drivers in New York insist that the machine is broken or look like they will break my legs if I whip out plastic. They don’t even seem that grumpy.

According to a well-researched and fascinating article in the New York Times yesterday, accepting plastic seems to have increased taxi receipts by about 13 percent in a down economy. According to one taxi trade group representative, “Credit cards helped the New York industry stay stable in a time when the rest of the for-hire industry was in significant decline.” People are taking short trips and paying with plastic; before they might have walked or taken the subway.

This is great news for consumers, taxi companies, and card issuers. Taxi rides are an enormous cash-paying market in the United States, and it is going plastic. One of the leading companies behind this effort is TaxiPass, which has installed meters in taxicabs in Newark, Las Vegas and many other places around the country. Consumers love to pay this way and taxi drivers are finding with TaxiPass just what the New York Times reports: tips are higher.

So why were the skeptics wrong (or at least seem to be based on this evidence)? Well, they have forgotten the contributions of not one but two economists who received the Nobel Prize for examining the role of “transactions costs” in the economy. Oliver Williamson is one of these , winning the prize this year. Ronald Coase is the other, who was awarded it in 1991. It turns out that there is lots of sand in the economic engine—these are called “transactions costs,” and cover basically all the inconveniences that occur in markets. A lot of institutions and practices develop to grease the engine—to reduce these transactions costs.

Plastic is an important source of grease for the economic engine. Being able to pay with plastic—or with electronic money—makes it easier on buyers and sellers. The taxi industry is a prime example. People like paying with plastic because it saves them a trip to the ATM machine (yes, it is easy to find an ATM machine in New York, but it takes time which many people rushing around Manhattan don’t have). For many people there’s also an advantage to getting a receipt showing the tip that they can give to their employer or the IRS. And for those math-challenged, I suppose it is easier to have the machine calculate the tip. The skeptics tend to minimize or ignore these challenges, but they are quite real for many people. And that, of course , is why modern economies have all embraced cards as a form of payment.

The taxicab story has important business implications for payments. Anything that reduces transactions costs is a worthwhile innovation for both consumers and merchants and increases economic welfare. It also has critical policy implications. Merchants in complaining about interchange fees act as if they don’t get any benefit out of it. They make the rather counter-intuitive claim that cash and checks and other centuries old payment devices are cheaper. The New York taxi example shows quite plainly that merchants benefit even when they all take plastic.

Neither merchants nor policymakers should forget the lessons of Coase and Williamson. Transactions costs matter and innovations like cards that make life easier are very valuable.

Amazon and PayPal have both announced aggressive efforts to persuade developers to use their payment technologies. Each has opened up a gateway into their payment platforms. They are providing developers with tools for writing applications that use their payment technologies. And they are “evangelizing” their payment platforms to encourage lots of developers to take them up on this.

Both of these alternative payment systems are adopting the “Invisible Engine” strategy that I discussed in What’s Next in Payments: Invisible Engines and in my book with Hagiu and Schmalensee, Invisible Engines: How Software Platforms Drive Innovation and Transform Industries. The platforms include services in that many developers can use. They then make these services available through an Application Programming Interface which allows developers to link into the technology without having to do much work. Here’s how Amazon describes it:

“Amazon FPS offers developers unmatched flexibility in how they can structure payment instructions, including standing instructions that can remain in place for multiple transactions. These instructions impose conditions and constraints on money movements and can be set by both senders and receivers of funds. For example, a sender might set a spending limit per week for a particular named recipient. Only that named recipient would be able to withdraw funds and only up to an amount per week equal to the spending limit. Amazon FPS offers easy-to-integrate, lightweight APIs that are categorized by use cases into interoperable packages called Quick Starts. With enhanced documentation, SDKs and sample code, it will now be faster and more convenient to enable payments on your application.”

PayPal held a developer’s conference on November 3rd to stoke interest. eBay’s President John Donohue said, “Bottom line: Working together, we will drive the next wave of payment innovation. You, the developer community, will create it. We, PayPal, will support it. Most importantly, millions and millions of consumers and merchants worldwide will benefit.”

The more developers use one of these payment platforms, the more innovative applications they develop, and the more consumers and merchants that will end up using that platform. This is a strategy that Apple has used most recently to ignite the iPhone. As I mentioned in my last post on this subject (Mobile App Wars’ Impact on the Payments Biz), developers have written more than 100,000 applications for the iPhone. Of course, Apple and Microsoft both used this strategy almost two decades ago to popularize their operating systems. Microsoft hit it out of the ballpark with Windows, which became the software platform of choice for developers for a long time.

Amazon and PayPal are great examples of how payment providers are using platform and invisible engine strategies to develop large ecosystems around themselves.

It is too soon to tell how each will evolve. A lot depends on whether Amazon and PayPal offer developers a compelling set of services, and whether these developers create applications that in turn are compelling for consumers and merchants. Much also depends on whether other platforms enter that provide more compelling propositions. There’s room for this.

Although each has done well, neither Amazon or PayPal has gone gangbusters outside their own core properties (Amazon and eBay). History also says not to call the race too soon. Apple seemed to be ready to conquer the world when the first spreadsheet package, Visicalc, was developed. But the PC with DOS and then Windows became a more attractive platform for developers.

An interesting question is how long the big payment card networks will sit out the “Invisible Engine” wars that are beginning. Will they sit back and watch PayPal, Amazon, Apple, and others race to develop applications that will lock vast numbers of consumers and merchants up?