The Grand Apple Pay Take-off
- By Shudeep Chandrasekhar
Mobile wallets have been around for awhile. Starting well before the proliferation of smart devices and gradual decline of desktops started crafting a new user landscape, theyave taken on several forms over the years including text-message-based transactions, contactless near-field communication, direct mobile billing and mobile web payments.
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Out of the myriad forms of online payment technology, mobile wallets have taken on a significant role in enhancing the whole mobile experience. From app-enabled Internet banking to credit-card-linked payment apps, mobile payments now account for about 30% of the worldas online transactions.
Against that backdrop, Apple Pay is nothing as revolutionary as the iPhone was in its day. But Apple (AAPL) seems to be betting heavily on the success of its mobile payment system. Does it need it? Yes, it does. With iDevice sales weakening and Apple having little else in the way of revenue streams, it's trying to take Apple Pay to a whole different level as a support for its core business.
In order to do that, Apple Pay has taken to the web and is now in direct competition with the blue whale of online transactionsA a P ayPal. On the mobile front, it needs to fend off other payment options like Android Pay and Samsung Pay.
Can Apple make it work?
In order to answer that, we need to look at a couple of different aspects of the industry. The first of these is the reason Apple Pay is taking to the web.
With PC sales on the decline and mobile sales breaking the 2 billion unit mark, itas obvious which direction Apple should be taking. So why is it going the opposite way?
The answer lies in transaction volumes. Even though mobile usage is growing at a tremendous rate, payments using mobile devices only account for less thanA one-third of the total. Obviously, web still rules. Even on mobile devices, most people seem to prefer going on the Internet to complete their transactions.
Although that trend is gradually shifting toward purely mobile payments, that leaves more than 65% of the worldas transactions outside the realm of mobile wallets and their providers. Thatas the basic reason Apple wants a slice of that pie.
Not that it's doing badly on the mobile front, mind you. According to CEO Tim Cook:
aApple Pay is growing at a tremendous rate with more than five times the transaction volume of a year ago and 1 million new users per week. There are more than 10 million contactless-ready locations in the countries where Apple Pay has launched to date including over 2.5 million locations now accepting Apple Pay in the U.S., and more expansion of Apple Pay is coming soon.a
In fact, Apply Pay currently enjoys a user base thatas bigger than both its rivals combined.
Not a bad start, but Apple wants more than that. With its entry into web payments, Apple can now tap into a segment where PayPal facilitates nearly $300 billion worth of transactions.
So whoas with it on this journey? IBM (IBM) and Shopify (SHOP), to name two companies that have recently joined hands with Apple on this. While IBMas 12,000 clients currently on WebSphere and Commerce Cloud will be provided with a widget for the purpose, Shopify plans on offering integration support to no less than 275,000 merchants that use its ecommerce platform.
Why is this significant for Apple?
From a mobile perspective, Apple Pay needs to maintain its user base lead over Samsung and Googleas Android. But that lead may not last for long, considering that Androidas market share is currently higher than the iPhoneas. Itas only a matter of time before more users on Android install either Samsung Pay or Android Pay as their preferred mobile wallet.
Before that happens, Apple wants to expand Apple Payas functionality and prepare to meet the future head on. The key strategy here is to get companies like IBM and Shopify to bring their merchants on board. Thatas how PayPal got so big, and thatas the route Apple necessarily has to take. Without the merchant base to back it up, the whole thing will be a wasted exercise.
Apple still has a long road ahead to where it can create its own global payment ecosystem. PayPal has a presence in more than 200 countries while Alphabet (GOOGL)(GOOG), Google's parent company, and Samsung (005930.KS) arenat going to be sitting still waiting for Apple to run away with the lead it currently has.
For now, Cook has a head start; and if Apple can fully exploit its massive cash hoard, its brand and its global reach in a strategic manner over the next few years, it can rest assured that it will have a very strong revenue stream built to last a long timeA a l ike the iPhone was to them nearly 10 years ago.
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This article first appeared on GuruFocus.
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