Apple’s mobile wallet is swallowing a growing number of card payments around the world. As the service grows, it becomes increasingly difficult for competitors like PayPal and to attract the attention of competition watchdogs.
Apple Pay accounts for about 5% of global card transactions and is on track to process 1 of these payments by 2025, according to recent trend data compiled by research firm Bernstein. “There are indeed many reasons to fear that Apple is trying to disrupt the payments ecosystem,” wrote Bernstein analysts, led by Harshita Rawat, in a research note.
As iPhone sales hit a plateau, the Cupertino-based company is looking into its service division, which includes Apple Pay. The unit generated $ 12.7 billion in revenue in the last three months of 2019, a 17% increase from the previous year. The company’s payment ambitions benefit from a massive treasury of cash, years of experience in card transactions and a large customer base of hundreds of millions of iPhone users.
The race for digital payments is a huge opportunity, generating around $ 1 trillion in revenue worldwide. Visa and MasterCard process more than $ 14 trillion in payments each year and continue to grow as more and more transactions go online, go through apps, and consumers in many parts of the world use them less often. cash.
Apple Pay earns money by taking a piece of every transaction that goes through the device. Users can store their credit and debit cards in the wallet and use them to make contactless payments – enhanced by biometric security – using their phone’s near field communication (NFC) technology. In the United States, contactless payments are expected to reach $ 1.5 trillion in 2024, up from $ 178 billion this year, according to Juniper Research.
There is no shortage of sophisticated and feature-rich payment apps, but Apple Pay has several advantages. The app comes pre-installed on iPhones and Apple tightly controls the device’s NFC technology used for contactless payments. That’s why Apple Pay is the only mobile wallet for iPhone capable of performing NFC transactions. (Alipay and WeChat Pay, the hugely popular Chinese payment applications, use QR codes. Optical codes are read by a phone’s camera and are not controlled by Apple.)
Academics, lawyers and executives see Apple’s control over the iPhone’s NFC chip as a way to block competition and make its own wallet more popular. Apple argues that its policies are aimed at ensuring security against hackers and making the user experience as smooth as possible.
Technology giants and maps
Apple CEO Tim Cook aims to give the wallet an extra boost by linking it to cash back via the company’s credit card. Apple Pay revenue and transactions more than doubled in its last fiscal quarter, Cook said in a conference call with analysts recently, and the portfolio is becoming more available for travel by train and bus worldwide, with deployments in Chinese cities like Shenzhen and Guangzhou. coming this spring.
Apple Pay is unlikely to be a problem for the card giants anytime soon. While the tech company could, in theory, create its own network that works outside of card systems, Bernstein argues that Apple still needs card networks, which are ubiquitous and reliable. Visa and MasterCard, on the other hand, are used to dealing with partners (traditionally large card-issuing banks) with the type of scale that even Apple Pay could find.
The same may not be true for other portfolios. “Apple Pay is indeed one of the long-term competitive threats to PayPal,” wrote analysts at Bernstein. For now, PayPal has a dominant position in the world of online payments and also benefits from the network effects that have developed since the beginning of the century. But Apple and PayPal could end up fighting over the same turf in the years to come.
Meanwhile, European officials are watching Apple Pay more closely. German lawmakers recently adopted a measure that would force tech companies to open their interfaces for payment services, but domestic lenders, including Deutsche Bank, have reportedly decided not to take advantage of Apple’s NFC interface.
And the European Commission is probing Apple’s control over NFC technology on the iPhone, marking the second time that European officials have examined the impact of the mobile wallet on the market. The commission’s preliminary view was that there was enough competition, but that could change as participation in Apple Pay increases.