Software platforms that have enabled developers to create payment applications for use on Apple Inc.’s iPhone and social-networking websites such as Facebook will have a significant effect on the payments industry over the next decade, David Evans, founder of Market Platform Dynamics, told attendees today during a keynote speech at the 2010 Payments Conference sponsored by the Federal Reserve Bank in Chicago.

Payment companies and the card brands are trying to decide whether they should develop their own software platforms or continue to develop applications based on a third-party’s development kit, Evans said. Regardless of a company’s decision, software platforms will continue to spur innovation in the payments space, he added.

Square Inc., which developed a device that enables small merchants and even consumers to use mobile phones to accept cards, is a prime example of how software platforms are changing payments, Evans said. The company created a card-acceptance iPhone app to use in conjunction with the device and incorporated software created on IP Commerce Inc.’s platform. IP Commerce provides a portal that enables Square’s device to connect to multiple card-processing systems, he said.

“These platforms drastically decline the amount of time it takes to develop businesses that involve payments,” Evans said.

PayPal Inc.’s software platform, PayPal X, is just starting to make an impact on the payments industry, Evans said. For example, TwitPay enables users to send and receive micropayments through microblogging service Twitter Inc. PayPal X powers TwitPay.

Facebook also has used PayPal X to develop Facebook Credits, which enables users to pay for virtual items in online games. Consumers may pay for those items via a PayPal account (see story). 

“[PayPal] wants people to create businesses based on these applications,” Evans said.

Payment companies also are focusing on product innovation despite the economy. Acquisitions by Visa Inc. (CyberSource), eBay Inc. (Bill Me Later) and American Express Co. (Revolution Money) show that the marketplace is transforming, Evans said.

“This burst of activity is actually pretty surprising,” he said. “Everyone in this business is focused on innovation.”

Evans also touched on how the recent Senate passage of a debit interchange-regulation amendment might effect industry innovation (see story). “It will have an impact,” he said.

 The amendment would force the card brands and issuers to “start thinking of new ways to earn money,” Evans said. That, in turn, would lead to new and interesting products for consumers and merchants, he said.

But the amendment, if included in the final reform bill and signed into law, also would change the kind of innovation in the marketplace. “The amendment will remove some of the innovations that are loyalty-based because interchange has been used to fund [those programs],” Evans said.

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