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The application wars in the mobile phone business are heating up. They will result in significant threats and opportunities for the payments biz.

Just recently the Apple iPhone topped more than 100,000 apps. It was just two years ago, on October 17th, that Steve Jobs announced that Apple was going to allow third-party developers to build apps for the iPhone. They pushed out a software developer kit back in February 2008. Today, for many people the apps are as, if not more, important than the phone itself. Meanwhile a whole industry of developers has been created all chasing the dream of coming up with a killer app. The Apple developers are part of a closed ecosystem — their applications, unless ported, only run on the iPhone and Apple has control over what goes into the iPhone app store and over revenue sharing pricing.

Meanwhile Google has successfully launched its Android phones following a completely different strategy. It's making the operating system freely available and encouraging phone makers to install it and app developers to write for it. Verizon just released its Droid phone with its iDon't ad campaign. The Droid doesn't have as many apps as the iPhone yet but here's the deal: since the Android operating system can run on many phones who it could become the Windows — oh no, not that again — of the mobile phone space, with lots of hardware working with it. That could encourage lots of developers to write for it. And all those folks with iPhone apps can think about porting them over to other operating systems like Android. And this isn't necessarily the end of the apps orgy — people are creating apps for the Blackberry and other software platforms may still come in.

Some of these apps are already payment related and the opportunities for payments-related innovation with these apps is enormous. We're already getting the obvious ones — apps that make the iPhone a payment acceptance device, apps for mobile banking, apps to track your money, and so forth. Transactions allows you to use the iPhone to accept credit card transactions anywhere. Others like PlanetAuthorize are doing the same. Of course mobile online banking providers like Yodlee quickly developed apps for the iPhone. Many of these apps are interesting and some are likely to be pretty important. But most of what we've heard about so far sounds like either in-the-box thinking — apps that take the low hanging fruit of the obvious — or not-quite-ready for prime time like some of the location based search apps that are being hyped. The key thing is that with all these developers, all around the world, thinking about apps, it is probable that someone — perhaps many someone's — will come up with a killer app that will revolutionize payments. Maybe someone in the payments industry, maybe you, or maybe someone who is a complete outsider.

What is clear is that those who have been thinking of a linear path going from mobile phone, to mobile phone plus NFC, to mobile phone is payment device at point of sale are likely to get some rude awakenings. Maybe that will still happen. But the real payments action on the mobile phone is going to come in the next few years from the developers of creative applications that use all the great features the mobile phone has now — rapidly improving guis with big clear screens, increasingly faster broadband connections, slicker operating systems, and locational-based capabilities. A small developer in San Jose, or Bose, or Austin, or Hanoi, or Sofia, or wherever isn't going to be thinking big thoughts about hooking merchants up with NFC. They are going to be thinking about what great stuff can they do now and make some money. I was wish I knew what that was. But the limits of my knowledge are that I know from everything we've seen from Invisible Engines that incredible ideas with come from out of nowhere and revolutionize industries including, most likely, parts of the payments industry.

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