Analyst: Apple ‘an emerging contender in the fintech space’

Tech behemoth's payments platform to surpass $1 billion revenue in FY2020

Apple’s payments platform contributed to record-high revenue in its fiscal fourth quarter and soon could soar into the multibillion-dollar stratosphere. But company executives are being coy about the platform’s performance.

During Apple’s Oct. 29 earnings call with Wall Street analysts, Krish Sankar, managing director and senior research analyst at investment bank Cowan and Co., pressed CEO Tim Cook for details about how Apple Card, Apple Cash and Apple Pay are “disaggregating the whole fintech environment.” Cook, who barely mentioned the payments platform in his prepared remarks, was rather tight-lipped in his response to Sankar.

“There’s just a limited number of things I can talk about. It’s kind of the reason I didn’t talk about it [previously],” Cook said. “We continue to be very enthusiastic about the whole payment services area. Apple Card is doing well, and Apple Pay is doing exceptionally well.”

In a recent note to investors, Sankar reported Apple Card, Apple Cash and Apple Pay had posted year-over-year growth of around 100% in recent years. He conservatively estimates revenue from the payments platform will surpass $1 billion for the first time in calendar year 2020 and exceed $2 billion by calendar year 2022.

“While Apple has portrayed these digital services as complementary to its mobile hardware platforms, we believe future scaling out of these services globally coupled with increasing depth and sophistication of them could position Apple as an emerging contender in the fintech space,” Sankar wrote.

Within Apple’s fintech segment, Sankar expects Apple Pay to be a bedrock. He predicts Apple Pay will be the biggest driver of fintech revenue over the next few years, with expected annual growth of over $800 million. But the Apple Card could leapfrog Apple Pay as a fintech moneymaker by fiscal year 2023, when Sankar envisions it reaching the $1.2 billion revenue mark. Apple rolled out its Goldman Sachs-issued, Mastercard-processed credit card in 2019. Apple Cash is projected to grab a much smaller share of fintech revenue, staying below $100 million over the next few years.

During the earnings call, Cook did hint that Apple stands to capitalize on increased U.S. adoption of contactless payments in the pandemic era.

“The U.S. has been lagging a bit in contactless payments, and I think that the pandemic may well put the U.S. on a different trajectory there,” Cook said. “And so we are very bullish about this area and view that there are more things that Apple can do in this space. And so it’s an area of great interest to us.”

Figures from Dynata, a provider of market data and analysis, back up Cook’s statement. A survey by Dynata found 90% of consumers in China, 85% in Singapore and 81% in the United Kingdom had used a contactless payment card or mobile app before the pandemic. In the U.S., the pre-pandemic share of consumers embracing contactless payment methods was just 38%, well below the global average of 68%.

But since the pandemic, the U.S. has seen a bigger spike (19%) in the use of contactless payment cards or mobile apps than any other country included in the Dynata survey.

A study released in August by the National Retail Federation and research company Forrester showed 67% of U.S. retailers were now accepting some form of contactless payment. That includes 58% that take contactless cards, up from 40% last year and 56% that take digital wallet payments via smartphone, up from 44% last year.

“Health experts say there is no clear evidence that COVID-19 is transmitted by cash or credit cards, but retailers are putting health and safety first and have rolled out a variety of no-touch payment options in order to err on the side of caution,” Leon Buck, vice president for government relations, banking and financial services at the National Retail Federation, said in a news release. “While mobile payments and contactless cards have accounted for a minority of payments in the past, the pandemic has clearly driven consumers to change their behavior and retailers to accelerate their adoption of the technology.”

Apple undoubtedly is seizing on the momentum in contactless payments, but the company is divulging few specifics about how it’s benefiting from it.

During the earnings call, Apple’s chief financial officer, Luca Maestri, noted the company hit an all-time revenue record in the fourth quarter of nearly $14.55 billion, with the payment services business establishing its own all-time record.

However, it’s difficult to discern how well the payment services segment performed, as Apple lumps that revenue into the overall services sector. Services revenue climbed 16.3% in the fourth quarter of 2020 versus the fourth quarter of 2019 and 16.2% for the entire 2020 fiscal year compared with 2019. For the full 2020 fiscal year, services revenue totaled nearly $53.77 billion.

Apple is pumping up its fintech revenue organically and via acquisition. This summer, Apple paid about $100 million for Canadian fintech startup Mobeewave. As Bloomberg explained in breaking the Mobeewave news, the startup’s tap-and-pay technology could transform Apple’s iPhone into a mobile payment terminal.

The Mobeewave acquisition came just a few months before Visa’s Oct. 21 rollout of technology enabling Android smartphones and tablets to be converted into contactless payment devices. Visa is initially introducing Tap to Phone in 15 markets outside the U.S.

“With billions of phones around the world at the ready, the opportunity that comes with lighting them up as payment acceptance devices is enormous. Visa Tap to Phone could be one of the most profound ways to reinvent the physical shopping experience,” Mary Kay Bowman, global head of buyer and seller solutions at Visa, said in a news release.

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