One of the key features for iOS 11 — at least in terms of a direct impact on AAPL stock — is Apple Pay Cash. Other features like ARKit augmented reality will undoubtedly help move more iPhones for Apple Inc. (NASDAQ:AAPL), but Apple Pay Cash will directly generate revenue through service fees.
And with person-to-person “contactless” payment volume rising rapidly, Apple Pay Cash is arriving at a perfect time. Apple announced the feature with iOS 11, but noted it would arrive at a later date.
With the company’s retail employees now testing it, the Apple Pay Cash release is imminent.
Apple Announces Apple Pay Cash
At WWDC 2017 in June, Apple announced it was getting into the person-to-person payment game with Apple Pay Cash. The new capability works through the Messages app, letting people directly transfer money from a debit card or credit card to another Messages user. It works on iPhone, iPad and Apple Watch. It also supports Siri on these devices, so users can send cash to a friend on their contact list with just a few words.
MacRumors and other websites are reporting that Apple Store retail employees are now testing Apple Pay Cash. That suggests the company is getting close to releasing the feature. Speculation has it being part of iOS 11.1, an update that is expected at the end of October.
Taking on Venmo
While contactless payments at the retail level have been increasing at a rapid clip, so have person-to-person payments. Americans sent $147 billion in direct payments to each other via smartphone apps or online services in 2016, up 47% from 2015 — and that number is expected to rise to $317 billion by 2020. Leading the charge are smartphone-toting millennials, who seem to prefer this method to carrying around cash for things like splitting restaurant bills, or chipping in their share of the rent.
Right now, the big player in person-to-person direct payment is Paypal Holding Inc’s (NASDAQ:PYPL) Venmo. In its last quarterly earnings report, PayPal said Venmo users sent $8 billion in direct payments, double the usage of the previous year. It’s on track to hit $40 billion in transactions for 2017. Also in the race is Square Inc’s (NYSE:SQ) Square Cash, which launched in 2013. Apple Pay Cash is aimed directly at these services.
Obviously, Apple Pay Cash won’t be available to the vast majority of smartphone users, since 88% of smartphones sold run Android. However, Apple is hoping that iPhone users will adopt the feature based on convenience. It will be a built-in capability of iOS 11 instead of a third party app like Venmo.
Impact on AAPL Stock
$317 billion is a huge number, but that is transaction volume, not revenue generated. Apple Pay Cash sent using a linked debit card is free for users, while using a linked credit card incurs a 3% fee. The effect of Apple Pay Cash on AAPL stock is going to be subtle, but it has the potential to become important with time.
The money that is transferred using Apple Pay Cash is stored on a virtual Apple Pay Cash card in iOS 11’s Wallet. From there, it can be moved to a bank account, but the recipient can also turn around and use it at a store with Apple Pay. That capability of the this person-to-person direct payment technology may just help to spur more iPhone owners to start using Apple Pay.
Apple isn’t going to make a fortune from one person paying a friend back for a movie ticket. Apple Pay Cash is going to be a volume business, but the pennies can quickly add up, especially if millions of iPhone owners start using it.
Like Apple Pay has, it is expected to help Apple’s Services division revenue continue to grow. Now the size of a Fortune 100 company in terms of revenue, Services is an increasingly important driver of AAPL stock.
Look for Apple Pay to arrive soon, possibly by the end of October — just in time for iPhone X pre-orders to start.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.