Even before launch, Apple Pay the 'player to beat' in mobile payments, Morgan Stanley says

Posted:
in AAPL Investors edited October 2014
Though Apple Pay isn't even available to consumers yet, investment firm Morgan Stanley expects that Apple's mobile wallet service will become the industry standard and help drive wider adoption of NFC-based payment systems.




Researcher Craig Hettenbach issued a blue paper to investors on Tuesday, a copy of which was provided to AppleInsider, to analyze the effect Apple Pay may have on the mobile payments industry when it launches on the iPhone 6 and iPhone 6 Plus this month. Because Apple Pay is compatible with the existing infrastructure and Apple already has such a large install base of users, Hettenbach believes that the company will have no trouble gaining traction.

"By reducing fraud, improving data security, and increasing credit/debit volumes for issuers and networks, while protecting the value of the existing payments value chain, we believe Apple Pay has a high chance of success," he wrote. "Apple's market share in the U.S., its exposure to a relatively affluent demographic, and the ease of use along with a unique form factor (Apple Watch) position Apple Pay as the player to beat in the mobile wallet space."

High hopes for Apple Pay stand in contrast to current near-field communications mobile payment services such as Google Wallet, which has failed to catch on with consumers in a meaningful way. Hettenbach believes that Apple Pay will be "highly disruptive" to competitors in the e-wallet market.

"Most other players looking to launch mobile wallets have either struggled with making the package sufficiently cost effective/attractive for merchants (PayPal, Square, Google Wallet) or sufficiently intuitive and convenient for the consumer (Isis/SoftCard, other telco wallets)," he said. "We think Apple may have solved both problems in one application."

A key factor for Apple's likely success, in Hettenbach's eyes, is compatibility with the existing payment infrastructure. In particular, Apple Pay will allow users to make payments with bank cards from existing issuers, and uses tokenization services from card networks to protect user data.




Apple's system also integrates with the existing NFC mobile payment infrastructure, which is also compatible with the EMV (Europay, MasterCard and Visa) standard for chip cards. Major U.S. credit card companies are currently in the midst of a transition to secure EMV payment systems.

And with a small-but-established base of NFC payment systems already in the wild, Apple's adoption of near-field communications with the iPhone 6 and upcoming Apple Watch will only help to accelerate the adoption of NFC-based technologies, Hettenbach said. He expects that about 50 percent of payment terminals will have NFC capabilities by as early as October of 2015.

"We think Apple Pay will help kick start what has been a slow-going NFC ecosystem on both the smartphone and merchant fronts," he said. "In particular, we expect other smartphone OEMs, especially in the Android ecosystem, to adopt NFC technology for mobile payments and merchants to increasingly upgrade their payment infrastructure to support mobile payments as consumer adoption rises."
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Comments

  • Reply 1 of 66
    MacProMacPro Posts: 17,972member
    No doubt everyone at Google is back at the drawing board seeing how they can copy everything as closely as possible.
  • Reply 2 of 66
    roakeroake Posts: 621member



    Maybe Samsung is hoping that people will use Apple Pay to buy a new Galaxy.

  • Reply 3 of 66
    herbapouherbapou Posts: 2,216member
    The system will get traction because Apple worked with banks and credit cards instead of against them.

    They should be able to roll out qucikly in Canada and Europe because NFC is already deploy there.

    That being said, I am still hoping Apple can reach a similar deal with cable for the Apple TV.
  • Reply 4 of 66
    Once again, this is where Apple triumphs: implementation. It's not about the feature but about the implementation of that feature. How has Google had NFC and a digital wallet?

    Implementation. They work the service first before they release the feature. Implementation.

    Did I say that it is all about implementation?

    This is why Apple rules! Implementation!
  • Reply 5 of 66
    plovellplovell Posts: 795member
    Quote:
    Originally Posted by herbapou View Post



    The system will get traction because Apple worked with banks and credit cards instead of against them.

     

    Very true. Unlike the "CurrentC" system coming from WalMart, BestBuy and others which cuts the existing players out of the system.

     


    Originally Posted by herbapou View Post

     


    They should be able to roll out qucikly in Canada and Europe because NFC is already deploy there.

    Yes - I expect so. The rollout hasn't been announced there and I expect that Apple will keep it U.S.-only for a short time while they work out the inevitable early bugs. But then it will be very quick because of the existing infrastructure, as you say.

  • Reply 6 of 66
    adonissmuadonissmu Posts: 1,772member
    Quote:

    Originally Posted by eckergus View Post



    Once again, this is where Apple triumphs: implementation. It's not about the feature but about the implementation of that feature. How has Google had NFC and a digital wallet?



    Implementation. They work the service first before they release the feature. Implementation.



    Did I say that it is all about implementation?

    Innovation in the form of working with the banks and players in the financial markets. Google may beat Apple to launching a feature but usability is the real issue and having a buy in from banks. 

  • Reply 7 of 66
    revenantrevenant Posts: 484member

    not surprising, even the unreleased apple watch is the one to beat.

     

    yet in the weird world of business analysts, that means the stocks are not worth buying.

  • Reply 8 of 66
    brucemcbrucemc Posts: 1,499member

    I fully believe that Apple will go from 0 to the lead in mobile payments, and push the industry forward as a whole.  It has been thus with Apple over last (almost) 2 decades - not always first, but with best overall implementation and most impact on industry.  Its impact on the user in convenience varies by country - within Canada and many European countries where NFC is already widely deployed, the convenience improvement isn't as great (though still some - generally easier to pull out phone than a card from wallet), but the security and privacy improvements will be significant.  The thing with Apple Pay, is that it basically benefits all players in the system (user, merchant, payment network, card issuer).

     

    Although not discussed as much, I think Apple Pay will have a similar effect on online/e-commerce as well.  I haven't seen any analyst mention that with TouchID, that biometric reading with Apple Pay will greatly reduce fraud for on-line, which should translate to a lower rate for merchants that use it.  I have read that the rates could be same/close to the card present rate, and that itself will drive the merchants to adopt it quickly - they pay less on every transaction.  Being able to use the common method across on-line merchants, paying with TouchID, massively increased security for the user (hello Target and Home Depot disasters), simple setup - the benefits for merchant, issuer, and user are huge.  While the Apple keynote only mentioned "Apps", it should be possible to support Apple Pay for general web payment as well - would require work on the Apple (method for exchanging information over HTTPS) and merchant side.  Perhaps this will be a "phase 2", but the benefits to seem clear.

     

    Right now Apple has a good lead here.  While Google Wallet is of course available for Android devices, getting the combination of reliable biometric authentication, secure information storage, payment ecosystem buy-in, & ability to bypass the mobile operators (who have a competing solution), is a challenge.  Samsung have a fingerprint reader (how reliable?), but they can't just tie that into Google Wallet in the secure manner that Apple has.  Not sure Samsung's carrier partners will support it.



    This is why I expect the new iPads to support Apple Pay - not for the NFC part (might be useful in business as a terminal?), but as iPads are much more used for online/e-commerce.  This might not drive a huge upgrade demand in iPads initially (e.g. this quarter), as this usecase/feature is not as easily understood as physical features like "Retina Screen" or thinner/lighter in the past, but it will build over time.

  • Reply 9 of 66
    charlitunacharlituna Posts: 7,205member
    The article mentions the switch EMV but neglects to mention that this switch is basically mandatory. The credits card processors are losing a small fortune every month in fraud charge backs. If they stick with the current system of the stripe they will have to raise merchant rates. Which they will likely do for those that want to stay on the stripe. Europe etc have proven that chip and pin is way more secure so if you want 'cheap' processing rates you will have to switch. Yes the switch will cost you some upfront but it will be offset in other ways and over time will come out okay
  • Reply 10 of 66
    brucemc wrote: »
    I fully believe that Apple will go from 0 to the lead in mobile payments, and push the industry forward as a whole.  It has been thus with Apple over last (almost) 2 decades - not always first, but with best overall implementation and most impact on industry.  Its impact on the user in convenience varies by country - within Canada and many European countries where NFC is already widely deployed, the convenience improvement isn't as great (though still some - generally easier to pull out phone than a card from wallet), but the security and privacy improvements will be significant.  The thing with Apple Pay, is that it basically benefits all players in the system (user, merchant, payment network, card issuer).

    Although not discussed as much, I think Apple Pay will have a similar effect on online/e-commerce as well.  I haven't seen any analyst mention that with TouchID, that biometric reading with Apple Pay will greatly reduce fraud for on-line, which should translate to a lower rate for merchants that use it.  I have read that the rates could be same/close to the card present rate, and that itself will drive the merchants to adopt it quickly - they pay less on every transaction.  Being able to use the common method across on-line merchants, paying with TouchID, massively increased security for the user (hello Target and Home Depot disasters), simple setup - the benefits for merchant, issuer, and user are huge.  While the Apple keynote only mentioned "Apps", it should be possible to support Apple Pay for general web payment as well - would require work on the Apple (method for exchanging information over HTTPS) and merchant side.  Perhaps this will be a "phase 2", but the benefits to seem clear.

    Right now Apple has a good lead here.  While Google Wallet is of course available for Android devices, getting the combination of reliable biometric authentication, secure information storage, payment ecosystem buy-in, & ability to bypass the mobile operators (who have a competing solution), is a challenge.  Samsung have a fingerprint reader (how reliable?), but they can't just tie that into Google Wallet in the secure manner that Apple has.  Not sure Samsung's carrier partners will support it.


    This is why I expect the new iPads to support Apple Pay - not for the NFC part (might be useful in business as a terminal?), but as iPads are much more used for online/e-commerce.  This might not drive a huge upgrade demand in iPads initially (e.g. this quarter), as this usecase/feature is not as easily understood as physical features like "Retina Screen" or thinner/lighter in the past, but it will build over time.

    +1 - Very good post!
  • Reply 11 of 66
    plovellplovell Posts: 795member
    Quote:

    Originally Posted by charlituna View Post



    The article mentions the switch EMV but neglects to mention that this switch is basically mandatory. The credits card processors are losing a small fortune every month in fraud charge backs. If they stick with the current system of the stripe they will have to raise merchant rates. Which they will likely do for those that want to stay on the stripe. Europe etc have proven that chip and pin is way more secure so if you want 'cheap' processing rates you will have to switch. 

    It's actually worse than that. It's not just the rates - but the liability. If a bank doesn't issue chip cards - it is liable (come October 2015). If a merchant doesn't have chip-capable terminals - it is liable. Word travels quickly so that merchant will have a lot of - ahem - "business".

     

    To your point - Europe has shown the advantage of chip+PIN. So I am at a loss as to why the U.S. is doing chip+sign. It's not that terminals don't have number pads - almost all have them already for debit card use. So why "sign" rather than PIN ??

  • Reply 12 of 66
    As a mobile merchant I want a way to TAKE Apple Pay. Supported transaction volume has to be well over $10k per month

    An iPad as NFC terminal, or perhaps web code supported by a hosting service like Go Daddy or provided by a payment processor like Go Payment. I want it soon.
  • Reply 13 of 66
    plovellplovell Posts: 795member
    Quote:

    Originally Posted by SailorPaul View Post



    As a mobile merchant I want a way to TAKE Apple Pay. Supported transaction volume has to be well over $10k per month



    An iPad as NFC terminal, or perhaps web code supported by a hosting service like Go Daddy or provided by a payment processor like Go Payment. I want it soon.



    Talk to Square. I have heard that they have a solution under way.

  • Reply 14 of 66
    plovell wrote: »

    Talk to Square. I have heard that they have a solution under way.

    Square will also be killed off by Apple Pay.
  • Reply 15 of 66
    solipsismxsolipsismx Posts: 19,566member
    No doubt everyone at Google is back at the drawing board seeing how they can copy everything as closely as possible.
    adonissmu wrote: »
    Innovation in the form of working with the banks and players in the financial markets. Google may beat Apple to launching a feature but usability is the real issue and having a buy in from banks.

    Unlike with music, movie and TV show deals, Google also needs to find a way for OEMs to create a secure method for storing these representational card numbers and PINs generated for each person's card by each financial institution. If they can't figure that out I don't see them getting the same low rate on transactions which could move merchants to say that they won't access non-?Pay wireless payments.

    How does Google create their own secure element like Apple when they aren't building any HW for OEMs?

    brucemc wrote: »
    This is why I expect the new iPads to support Apple Pay - not for the NFC part (might be useful in business as a terminal?), but as iPads are much more used for online/e-commerce.  This might not drive a huge upgrade demand in iPads initially (e.g. this quarter), as this usecase/feature is not as easily understood as physical features like "Retina Screen" or thinner/lighter in the past, but it will build over time.
    sailorpaul wrote: »
    As a mobile merchant I want a way to TAKE Apple Pay. Supported transaction volume has to be well over $10k per month

    An iPad as NFC terminal...

    It would be unlike Apple to include NFC in the iPad (which I don't think has Passport support, even in iOS 8) as this wouldn't be a consumer-focused inclusion, but I hope they do. The ability to make an iPad (or iPhone) a register to use other NFC-based devices means you don't need some ugly dongle, you get a modern payment solution, and Apple gets to reinforce their ?Pay system with even more devices.

    I could even see Apple setting up a special account system for those that want to make their iDevice an NFC-capable payment receiver.
  • Reply 16 of 66
    maestro64maestro64 Posts: 4,443member
    Quote:

    Originally Posted by SailorPaul View Post



    As a mobile merchant I want a way to TAKE Apple Pay. Supported transaction volume has to be well over $10k per month



    An iPad as NFC terminal, or perhaps web code supported by a hosting service like Go Daddy or provided by a payment processor like Go Payment. I want it soon.

     

     

    Quote:

    Originally Posted by plovell View Post

     



    Talk to Square. I have heard that they have a solution under way.


     

    Based on the Oct 2015 mandate small merchant will need to comply as well and I would image companies like Square and others will be implement the NFC and EVM for merchants to use their phones and Ipad to accept payments otherwise, you will be liable to any loses.

     

    I personally see more people using the iPhone and iPad to process payments than I ever see using any Android device, Apple is already ahead of the game here.

  • Reply 17 of 66
    plovellplovell Posts: 795member
    Quote:

    Originally Posted by SpamSandwich View Post





    Square will also be killed off by Apple Pay.



    I heard that they were participating with Apple as a payment processor. That's not competing with Apple but working with the Apple Pay system. If they do this then they might be successful, especially with mobile terminals (think: places without wired network infrastructure)

  • Reply 18 of 66
    plovellplovell Posts: 795member
    Quote:

    Originally Posted by Maestro64 View Post

     

     

     

     

    Based on the Oct 2015 mandate small merchant will need to comply as well and I would image companies like Square and others will be implement the NFC and EVM for merchants to use their phones and Ipad to accept payments otherwise, you will be liable to any loses.

     

     


    Coming. Check out https://squareup.com/emv

  • Reply 19 of 66
    "This is why I expect the new iPads to support Apple Pay - not for the NFC part (might be useful in business as a terminal?), but as iPads are much more used for online/e-commerce."

    I completely expect the new larger iPads will have NFC built into them so they can become retail terminals for ApplePay. No need to buy some expensive terminals and install them in all your stores, buy iPads and build your own retail associate app that links to your existing inventory and product management systems.
  • Reply 20 of 66
    blazarblazar Posts: 270member
    i want apple pay now... The rest of the systems can go to hell.

    I KNOW that i will use retailers that have apple pay and avoid the ones that do not.

    I dropped walmart almost entirely because they have 30 registers and three of them are open.
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