Paypal bonanza for Apple: the Mo’ Money Tune

Apple is now accepting Paypal. This is good for users of Paypal, and it’s good for Paypal, but it is great for Apple.

There’s an aspect to this deal that most journalists have missed: more revenue for Apple Computer.

Remember, the only thing that made the iTunes music store even remotely possibly, when it first came out, was a special deal with the credit card companies that reduced their take of each transaction.

Without the deal, VISA and Mastercard would take 30 cents of every transaction … and Apple, the rapacious music labels, and starving artists would have to fight over the remaining 70% of the retail price of each and every song. This is not, to say the least, a recipe for success, never mind changing the musical landscape.

So Apple worked out a special deal, and the credit card companies are taking less, WAY less, of every music store transaction. But they’re still taking a big chunk … probably 3-5%.

Enter Paypal.

Paypal users charge up their account with comparatively large episodic transactions on their credit cards … $50, $100, and so on. Credit card fees on that transaction are therefore spread over a much larger series of purchases.

Now, Paypal does charge merchants for using their payment service, usually somewhere less than 2% of each transaction. That amount is almost certainly better than what the credit card companies charge, plus, it’s capped at low, low prices even as purchase totals rise. But Apple has almost certainly worked out a special deal with Paypal that has reduced that low number even further.

Hence the deal with Paypal. Hence the 5 free songs if you buy with Paypal. Hence the major fanfare to what otherwise is simply adding another means of payment to a successful e-tailing service.

This deal is big for Paypal, but it’s huge for Apple Computer. Absolutely huge. Apple has just figured out a way to boost profit (not revenue, mind you, pure top-line profit) by an extra 2-3%.

Very, very nice.

Very, very smart.