Should You Bet on Apple Pay?

Apple (AAPL) stock has had a killer year, with shares soaring over 30% since 2014 kicked off. Between big product announcements, acquisitions, a stock split and more, the tech darling has continued to churn out headlines, buzz, big profits, and big returns for investors.


Source: Apple

But for the past few days, AAPL stock investors scrolling the headlines saw some not-so-hot chatter circling their company. The topic in discussion? Apple Pay.

Here’s what you need to know.

What Is Apple Pay?

In case you haven’t tuned in, Apple Pay was officially announced last week. It’s a mobile payments system or virtual wallet — whichever term you prefer. In a nutshell, iPhone 6 and iPhone 6 Plus users can simply update their operating system and start using Apple Pay at retailers.

All that entails is snapping a photo of your credit card, which is then stored virtually on a chip so you can use your phone to pay for things via wireless technology called near field communication (NFC).

What Does It Mean for AAPL Stock?

Apple Pay sounds pretty cool, right? But headlines circling now point out that, despite the hype, the vast majority of retailers don’t actually accept it. Business Insider summed it up simply saying, “major stores like Whole Foods (WFM), Walgreens (WAG), and Panera Bread (PNRA) all accept Apple Pay, but the vast majority of retailers do not. Apple says there are over 200,000 Apple Pay-ready retail locations, but that’s just a sliver of the retailers in the US.”

The term “pay-ready” refers to the fact that merchants must upgrade their credit and debit card systems to read the NFC signals that enable Apple Pay to work.

CVS (CVS) and Rite Aid (RAD) actually disabled the technology in their stores, according to a recent Bloomberg article, which also noted that both are part of a “consortium developing a competing payment system.”

That brings us to the real issue at hand: competition. InvestorPlace tech expert Brad Moon wrote about this problem over a year ago, noting that “mobile payment has encountered numerous barriers, with perhaps the biggest challenge being the sheer number of contenders for a mobile payment standard.”

A recent Barron’s article expressed a similar sentiment. Jim McCarthy, Visa’s head of innovation and strategic partnerships, told the publication, “Early adopters in the [digital] space have learned the hard way. Payments are just hard.”

What’s Next?

Of course, the steep competition also confirms the reason Apple Pay is such a big deal. If Apple can become the go-to standard, as it has done successfully with other groundbreaking technologies over the years, it will be a huge deal for the stock.

The mobile payments market is projected to hit $90 billion in 2017 — approximately seven times more than it was worth in 2012. If Apple Pay really takes off, companies like CVS and Rite Aid won’t have a choice but to participate. After all, having customers pay with Apple Pay is far better than them not pay at all.

For now, the same problems — high competition and low adoption rates — that have dogged mobile payment systems remain. Despite the hype, they are definitely dogging Apple Pay specifically.

The bottom line for AAPL stock investors? It could take some time for Apple Pay to pay off, if it happens at all.

As of this writing, Robert Martin did not hold a position in any of the aforementioned securities.

Article printed from InvestorPlace Media,

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