It’s only speculation at this point, but Pacific Crest analysts make a good case for AAPL partnering with Visa. And the timing sure looks right.
The highly anticipated iPhone 6 will likely come with NFC (near field communication) technology. At the same time, Visa is opening up its network and introducing a new security service that features a new token. The token technology should make security — the Achilles heel of mobile payments — much cheaper and easier.
It would also be a strategic win for both Visa and Apple stock. Visa is the world’s largest payments processor, but the brave new world of mobile payments is still up for grabs. AAPL sure doesn’t want Google (GOOG) or Facebook (FB) to be the standard bearer.
By hooking up with Visa, AAPL would rely on the payments processor to run the back end of the system. That’s not really in Apple’s wheelhouse, so ceding control to an expert company like Visa makes tremendous strategic sense.
Visa, meanwhile, would hook up with a titan of mobile devices, and gain simply from association from the Apple brand.
Tapping Into AAPL iTunes
Even more important, Visa and Apple would be able to leverage Apple’s massive amounts of personal data and information. As analysts at Pacific Crest write:
“Apple could use its large stockpile of iTunes accounts and cards on file (about 800 million), along with Passbook and a new token partnership with Visa, to provide a highly scalable payments platform.”
Passbook is an Apple app used for storing everything from coupons to boarding passes. Adding Visa-Apple mobile payments to its capabilities would create a “Passbook on steroids,” the analysts say.
As for Visa, yes, the company is huge, but adding all those Apple transactions to its base business still would move the needle on Visa stock. At the end of last year, Visa had 2.2 billion cards and processed 58.5 billion transactions on its network. Furthermore, Apple customers skew toward the affluent side, which means they have more discretionary income.
At stake is the lucrative mobile payments business, which still is very much in its infancy. Anyone holding Visa or Apple stock sure wants these companies to grab the biggest piece of that pie. Pacific Crest estimates that the companies could grab incremental revenue of $2 billion with just 5% of digital payments. Special offers are a $100 billion opportunity with only 1% of digital payments.
Pacific Crest Securities says the changes at Visa represent a great opportunity for AAPL to enhance and expand its mobile payments business. It’s too good a strategic partnership to ignore. Indeed, analysts think the Visa and AAPL could announce a tie-up as early as this fall, piggybacking on the launch of iPhone 6.
Finally, mobile payments have been slow to get off the ground because using cash or cards just isn’t inconvenient enough to be supplanted by something else. But if Visa and AAPL were to “crack the code” and make it something consumers feel they must have, well … look out.
As the analysts note, that would help the entire industry — including Amazon (AMZN) and Google — because it would make the mobile payments pie that much bigger. Although, it would definitely make PayPal owner eBay (EBAY) sweat.
Whether it comes to pass or not, a V-AAPL partnership sounds too good to forgo. If you hold Visa or Apple stock, don’t be surprised if this speculation actually comes to fruition.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.