Apple (AAPL) just scored a point in the fast-growing but fragmented mobile payments industry by adding another spoke to the Apple Pay wheel.
Apple Pay will now work with privately held PayAnywhere’s credit-card reader, the payments processor said Thursday. Additionally, the latest version of PayAnywhere’s reader will be sold exclusively at Apple’s retail locations, as well as its online store. The partnership with PayAnywhere bodes well for Apple Pay in its efforts to win over small business owners.
No, this deal won’t move the needle on revenue or AAPL stock. It does, however, represent progress in AAPL’s goal for widespread acceptance of Apple Pay.
That’s long-term bullish news because mobile payments have significant strategic importance for Apple and AAPL stock. The iPhone business is amazing, but AAPL’s high dependence on smartphones means the tech giant very much needs to diversify its revenue stream.
A businesses like Apple Pay could go a long way toward achieving that goal. Consumers are expected to make more than $140 billion in mobile payments by the end of the decade, according to Forrester, a market research and consulting firm.
Even a company as mammoth as Apple would benefit from taking a chunk of a market that large.
Moreover, Apple Pay is a way to leverage the popularity of the iPhone. The mobile payments industry is a bet that consumers are willing to leave their credit cards, debit cards and cash at home. Instead, they’ll pay for goods and services with their smartphones.
AAPL’s large and growing base of iPhone users gives it a leg up in that regard. The intsall base is already there. And if Apple Pay proves to be popular, that popularity should boost iPhone sales.
Apple Pay Against the World
Another advantage Apple has with Apple Pay is that the company pretty much always combines hardware and software better than anyone else. That kind of integration should help Apple Pay to differentiate itself amid a gold rush of competitors.
Google (GOOGL), Facebook (FB), PayPal (PYPL), Twitter (TWTR) and privately held Square are just some of the other players vying for a piece of the mobile payments pie.
Another thing Apple Pay has going for it is that Apple has an enormous stockpile of iTunes accounts on file, each of which represents an opportunity to scale the platform.
Analysts as Susquehanna figure that every 1% share of global purchases made using Apple Pay will boost operating earnings by 0.4%. That’s why the PayAnywhere deal is encouraging news. The faster Apple expands its Apple Pay network, the sooner the contribution to earnings becomes material.
PayAnywhere is an incremental move, but it represents something pretty important for the long-term success of AAPL stock.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
