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How Apple Pay might really pay off for AAPL

Yesterday Apple revealed it's new payment solution, Apple Pay, as part of the big iPhone 6 launch in California. The rumours that had been circulating about what we previously called 'iWallet' were largely correct. And, of course, there is more to the story. But before I dive into my thoughts, Apple watchers who follow the stock might want to browse through this post at Fortune. It's a nice summary of what analysts are saying about Apple Pay.

Keep in mind most analysts think very short term, so unless a product is going to made huge changes in revenue / earnings in the next 2 years it isn't going to change a target price or recommendation much. Most analysts are assuming that Apple will take a small slice of the action whenever Apple Pay is used. This makes sense. But how much does it amount to? Katy Huberty at Morgan Stanley estimates Apple Pay will have a $0.03 positive effect on earnings per share next year. If this was valued at the same 14 times multiple Apple stock trades at, it would amount to far less than a 1% change in Apples' share price.

But Huberty also says the Apple Pay system stands to grow seven fold as other bricks and mortar stores adopt it. Still, we're talking about something on the order of a 3 percent change in the value of Apple shares if analysts were to value Apple Pay the same way they seem to value Apple as a whole.

Personally, I prefer to think much longer term. And in the long term a lot more payments will be moving online. The risk of fraud when people use a credit card online is much higher than it should be with Apple Pay (backed up by Touch ID). But how much longer term do we need to think?

Let's go back to 2007. Apple launched the iPhone but did not address the availability of an SDK or App Store. That came later, and it made a huge difference to the company's success. Today, with Apple Pay, the company has a similar opportunity except they've already told us, up front, to expect an API for online merchants to be able to implement Apple Pay into apps and website stores. I buy stuff online all the time and I can't stand having to enter in all of my personal and financial information every time. It's a hassle. Apple saves this from happening.

From what I gathered in yesterday's keynote, Apple Pay only works at bricks and mortar stores, or when you do digital shopping right on your iPhone. While that's nice because a lot of people do shop from their phones, people still love shopping from their big laptop or desktop monitors, and Apple Pay doesn't help us there. At least not yet.

I predict Apple will come up with a simple way to allow you to buy stuff online, from any browser, using Apple Pay. I won't pretend to know exactly how they'll implement it but here's one possible way: When I go to checkout I click a "Check out with Apple Pay" button and I'm asked for my Apple ID (no password). Automagically, behind the scenes, a request is sent to my iPhone to approve the payment. I use Touch ID to pay, and Apple sends confirmation of the payment straight back to the web vendor.

There are other ways Apple can do this including putting RFID right into Mac products, and I'm sure people smarter than me can figure out even better or easier ways to make this happen. And if it does happen, I think it's a huge game changer.

Apple Pay will certainly make some money if we assume the rumours are correct about Apple taking a small slice of the action. And if that small slice is multiplied over billions of transactions every year we're talking about a lot of real money.

But perhaps even more important is the idea that Apple Pay becomes so darn convenient to a population of online and offline shoppers that buying an iPhone 6 or iPhone 6 Plus is a no brainer.

It's your own personal convenient secure payment device. Oh, and a damn good smartphone too.

Former sell side analyst, out-of-box thinker, consultant, entrepreneur. Interests: Wife & kids, tech, NLP, fitness, travel, investing, 4HWW.

15 Comments
  • This plus the apple watch should make you smile as an investor. You need an iphone for either one. Not only that but Apple just went super premium with the plus. Lots to like..
  • i dont know about the watch it to me seems like it was rushed but im liking the iPhone 6 and 6 Plus.
  • I'm not interested in a watch but I can already tell this will be huge. Apple nailed it for a first gen. This is where the power of Apple just kicks in with its role as both software and hardware maker and attention to details. IMO, Apple just defined what a smartwatch is and left every other wannabe smart watch maker with their mouths hanging open.
  • Key words, 'first generation'.. As a first gen device, it's really good, but, its still first gen. The second gen and 3rd will really show us where this is going to go.. hopefully up, up up.. I think battery life will be an on-going struggle for at least several generations.
  • And yet if it lasts a day, it's already on par with a phone which i have to already charge daily.
  • Yes - I think the AppleWatch looks really interesting. I have not worn a watch in years. So I'm unlikely to buy one based on what I know today. But I don't yet know what app developers will come up with. It would be dumb of me to say I'll never buy one without that future knowledge. I suppose if enough app developers put thought towards the question, "How can I make an app that will be awesome to use for XYZ niche market on an Apple Watch?" then stuff will pop up. As a shareholder ... yeah I like the product. I think Apple customers who wear watches will consider it. I think Android users will consider defecting (including me. I'm definitely migrating to an iPhone 6)
  • I think the Pay secure verification and authentication network can be extended to cover other financial transactions so that the risk of financial identity theft can be virtually eliminated. Imagine a system where financial institutions are plugged into the network so that no transaction (loan approval, funds transfer etc.) which you are allegedly party to will be executed without positive verification from you through, and only through, your TouchID button. This is especially useful if you bank online because with no face to face contact, the bank can't ask for positive forms of ID. If that's not a killer feature, I don't know what is.
  • Sounds like an awful lot of trouble to go through for what isn't a big deal to begin with (shopping online). Contrary to the wishes of some tech folks, people aren't looking for easier ways to do what is already easy - spend their money online. A lot if folks already think it's almost TOO easy already. As to B&M, if one has any knowledge of payment systems, they know how antiquated the majority of card machines in the US is. Sure, in a few years you may find a decent amount of national chain retailers with NFC, but unless you only shop at big box chains, you still will need your traditional payment methods or you will be restricted in where you can shop. It will be decades before they are anywhere near ubiquitous - most folks fight getting a new machine as long as they can. Many have just upgraded to allow debit transactions, and they certainly aren't going to upgrade again so a portion if iPhone users don't have to swipe a card. The only real demand for this type of financial product is from the folks like Apple who want in in the payment industry so they aren't "losing" by using the traditional card processors they are married to.
  • Sorry Adam, it won’t be decades before the switch, it will be by Oct 2015. At this time retailers who haven’t switched over become accountable to pay for fraud if they haven’t upgraded their equipment. That is a huge incentive and very few retailers will be wanting to be left holding the bag here. http://blogs.wsj.com/corporate-intelligence/2014/02/06/october-2015-the-...
  • I hope we will see Touch ID on the Mac in the next year. It would be a shame not to bring that in. I had a finger print sensor on my old HP that I had before I jumped to Mac and that is the only thing I miss.
  • As a small biz appliance repair company, we sure are interested in ApplePay.
    'Currently using Square's on the go app&dongle. Would be so nice to allow an NFC option for our customers to pay w/ their iPhone using ApplePay. So then, what do *we* need to do to get this going…?? Sent from the iMore App
  • My question is this: Assuming Apple Pay will only ever work on iPhones, how will Apple Pay ever become huge in stores past some larger chains? Considering most smartphone users do not have an iphone (even in the US), why would stores want to invest, and give a cut to Apple, only to cover maybe 30% of the market (guess number when you add people without smartphones at all)?
  • Apple Pay will just be using a regular NFC reader. Google Wallet and Soft Card (ISIS) will work just as they do now. Posted via the iMore App for Android
  • It would be nice to see an article about how mobile payments was another missed opportunity by BlackBerry. BlackBerry should have jumped on this years ago and catered it to business users to start by getting it into places that businesses users frequent: Starbucks, airport vendors, subway vendors, etc. That aside, Apple Pay exemplifies why Apple is able to garner such consumer mindshare despite often not being the first to market. Instead of taking a wait-and-see approach, Apple is proactive in generating user interest. And in this case, it was about doing the legwork to get major payment companies and key merchants on board. But, Chris, it's hard to see the value prop for the merchants and payment companies, and the payment companies are more incented than Apple to figure this out. Plus, while I'm sure Apple Pay will be more convenient than other mobile wallets, it hasn't eliminated the requirement for merchants to upgrade their POS systems. That is a huge barrier.
  • Part of the problem with approaches like NFC-based wallets is that they're relying on the same physical payment paradigm that exists today with credit cards. The primary consumer benefit is consolidation of physical cards, but the process of scanning and paying via a physical medium remains. An alternate, interesting approach would be rethink the digital "shopping cart" by adding support for goods purchased physically at brick-and-mortar stores. For example, when a cashier rings up a product you want to buy, it gets added to your digital shopping cart, and the payment is processed entirely through your phone--no need for swiping or scanning any physical form of payment. An even cooler approach would be "smart" physical shopping carts where anything you put in it is automatically added to your digital shopping cart.