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.

Chris Umiastowski

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