By some measures, Apple Inc.’s (NASDAQ:AAPL) Apple Pay has been a success, especially over the past year. It is currently the most widely accepted mobile payment system in terms of support by U.S. retailers and enjoys wide acceptance globally among banks and financial institutions.
What’s missing from AAPL’s offering is support for transferring money from one person to another — a la PayPal Holdings Inc’s (NASDAQ:PYPL) PayPal and Venmo, and Square Inc’s (NYSE:SQ) Square Cash. That may be changing.
A report has AAPL in talks with financial partners to offer a Venmo-like service — an ‘Apple Cash’ — that would let iOS users send money back and forth.
And this Apple Cash service could be coming later this year.
Recode is reporting that AAPL has held discussions with financial industry partners about the possibility of introducing its own digital money transfer service to take on the likes of Venmo. An Apple Cash, as Recode terms it. The service would let iPhone owners send money digitally to other iPhone owners.
Mobile payments are big business. Transaction volume for the U.S. alone is predicted to hit $282 billion by 2021.
Apple Pay launched in October 2014 in an attempt to capture a chunk of that business. Since that time, it has grown considerably. Apple Pay is now accepted by over 2,000 banks, worldwide. NFCWorld reported in February that Apple Pay was at the top in the U.S. for retailer adoption at 36% (up from 16% the previous year), followed closely by PayPal and then Mastercard Inc’s (NYSE:MA) Mastercard PayPass. Last October, Apple CEO Tim Cook announced Apple Pay transaction volume in September exceeded the total for all of 2015.
Despite that adoption rate, Recode’s post says Apple Pay transactions totaled just $36 billion in 2016 — well below volumes that some analysts had expected.
The Importance of Money-Transfer
One key feature missing from Apple Pay that other mobile payment systems offer is the ability to transfer money between users. PayPal is a prime example of this and its Venmo system is particularly popular among digital-savvy millennials.
PayPal is used by many in the “gig” economy to facilitate payments for work completed. Venmo is positioned more as a true digital wallet for the socially active. They can make purchases using their Venmo account, but they can use it like cash — splitting restaurant bills between friends, paying their share of the rent, or sending money on someone’s birthday.
Apple Cash would fill a similar role as Venmo.
According to Recode, Venmo processed $17.6 billion in money transfers in 2016 and has been doubling its volume yearly.
What’s not clear is whether AAPL would make any profit from money transfers. Recode points out the service is usually a money loser for new entrants. Venmo waives fees for users to send money unless they transfer from a credit card, in which case a 3% fee is applied. A Wall Street Journal article from a previous Apple stab at a money transfer service suggested the company wouldn’t be collecting any money from banks for a transaction.
Instead, Apple could leverage an Apple Cash service to increase iPhone popularity and boost Apple Pay adoption rates among its users. A March report from LoupVentures suggests only 13% of iPhones have activated Apple Pay and AAPL would clearly love to see that number increase — key (along with retailer adoption) to driving the profitable Apple Pay transaction volume.
Apple Pre-Paid Debit Cards?
Also part of the Recode story is the possibility that AAPL may partner with Visa Inc (NYSE:V) for pre-paid Apple-branded debit cards. The Apple Cash service and Apple Pay would be tied to these cards, allowing users to receive and spend money added to the balance without waiting for the payment to clear their bank.
Apple was supposedly in similar talks back in 2015, so it isn’t a done deal. However, at least some of Recode’s sources think an Apple Cash service could launch later this year. As usual with AAPL, stay tuned as the company is unlikely to comment or confirm until such a service actually launches.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.