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Apple’s Next Frontier: The Digital Wallet

6 November 2014 in Trading Ideas

You want disrupting? Apple will give you disrupting.

The Silicon Valley tech giant recently dove headfirst into the digital payments universe by introducing Apple Pay, a service that lets owners of new iPhone models – as well as the Apple Watch – make payments to retailers on their devices.

Apple CEO Tim Cook took only a week after the technology’s unveiling to call it a hit, announcing that 1 million credit cards had been activated in the first three days that the system was live.1

In perhaps the most damning praise for Apple’s move, a coalition of retailers refused to accept it in their stores. More than 50 companies make up this group, the so-called Merchant Customer Exchange or MCX, including global retail giants like Walmart, Best Buy and Gap.2

Oh, MCX is working on its own mobile wallet competitor, called Current C.

As the New York Times reported, since Apple Pay was introduced a week ago, consumers have tried to use it in MCX members like Rite Aid and CVS. Those businesses countered by disabling the technology that supports Apple Pay.

As the Times noted, at stake in this tussle is the future of how consumers pay for things, with technology companies, credit card businesses and retailers all fighting for a piece of what may become a $90 billion mobile payments market, according to projections from Forrester.

Mobile payments are still very young in commerce and shopping. In 2013, the Times pointed out, mobile proximity payments in the US amounted to $1.6 billion, according to eMarketer, an industry research firm. That’s peanuts next to the $4.26 trillion spent in brick-and-mortar stores.

While many industry experts expect mobile payments to rise over the next five years, the Times said it still doesn’t mean that consumers will find mobile wallets any more convenient than paying with cash or a credit card. Google’s payments product, Google Wallet, famously flopped after its introduction in 2011, according to the Times, and PayPal’s mobile wallet options have failed to truly catch on as well.

And as Barron’s recently pointed out, Apple Pay has in no way blown up the traditional payment ecosystem. With Apple Pay partnering with Visa, MasterCard and American Express, the technology is “essentially a high-tech way to access traditional cards issued by big banks.”3 For Visa and MasterCard, Barron’s noted, it’s just one more conduit to their electronic networks.

Apple’s embrace is also a possible confidence-booster for investors in these companies and their highly profitable networks.

The Digital Dollars motif, which is about 55% weighted by shares of Visa, MasterCard, and American Express, has gained 9.8% in the past month. In that same time period, the S&P 500 has risen 3.1%.

So far in 2014, the motif has gained 7.1%; the S&P 500 is up 11.3%.

Barron’s also suggested that Apple’s new system could spur a new wave of payment-equipment upgrades, with merchants stepping up their payment security. That could mean a boost for companies like motif component VeriFone Systems, which has about a 60% share of retail payment terminals in the US.

Ironically, Apple Pay won’t likely move the needle for Apple itself anytime soon. However, its contribution to moving consumers further away from using cash may be bigger than its own technology.

1Brian X. Chen, “Apple Pay Already a Huge Hit, Cook Says,” nytimes.com, Oct. 28, 2014, http://bits.blogs.nytimes.com/2014/10/28/apple-pay-already-a-huge-hit-cook-says/, (accessed Nov. 3, 2014).

2Mike Isaac, “Apple Pay Runs Afoul of MCX, a Group With a Rival Product,” nytimes.com, Oct. 28, 2014, http://www.nytimes.com/2014/10/29/technology/apple-pay-runs-afoul-of-a-rival.html, (accessed Nov. 3, 2014).

3Alexander Eule, “Apple Pay Takes On Hackers, Cash,” barrons.com, Oct. 25, 2014.

  1. jay
    6 Nov at 8:32 pm

    I still prefer bitcoin