Apple Card, Apple Pay could be Apple's next multi-billion dollar businesses
Investment bank Cowen forecasts that Apple's payment services, like Apple Pay, are well-positioned to take advantage of the growing fintech and retail markets.
Credit: Apple
In a note to investors seen by AppleInsider, lead analyst Krish Sankar notes that Apple's digital payment platforms are a "fast growing but underrated part" of the company's services business. The category includes Apple Pay, Apple Card, and Apple Pay Cash.
All three payment services have, collectively, shown growth of around 100% year-over-year, the analayst said. The ongoing coronavirus pandemic also appears to have accelerated growth and adoption of the financial technology (fintech) services.
"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 writes.
Within Apple's fintech segment, the analyst expects Apple Pay to remain the cornerstone. The platform could see increasing acceptance at U.S. retailers, and Sankar predicts that the contactless payment service will be the largest revenue driver over the next few years, with an expected $800 million in growth annually.
Sankar sees Apple Pay growing at an 18% compound annual growth rate (CAGR) through 2023, and markets such as Asia and Europe could allow for even further expansion.
The Apple Card, largely off to a slower-than-expected start, could take over as Apple's primary fintech growth driver after 2023. Cowen predicts that Apple Card could grow at an 89% CAGR to $1.2 billion by 2023, based on a "conservative 2-3% penetration rate into digital-based global retail spending."
The analyst said he believes Apple receives a 1% fee for all transactions made with Apple Card. That's in-like with other card issuers, but could end up "the most lucrative opportunity longer-term compared to the Pay and Cash products."
Apple Pay Cash, the company's peer-to-peer payment system, is also very "complementary" to Apple's other fintech products. Cowen is modeling that Apple Cash will see growth, but may remain under $100 million over the next few years. That's because only a small percentage of cash transfers are "instant," which is the only type that generates revenue through a 1.5% transaction fee.
Cowen is modeling that growth from the Apple Card and market penetration in North America could see Apple's fintech segment becoming the next multi-billion dollar business by 2022.
"We expect Apple to remain focused on penetrating the North American market and ultimately the European one as well given the high usage of credit cards and different forms of digital payments including online and mobile/contact-less payments," the analyst wrote.
Taking a broader view of the $25 trillion global retail spending opportunity, Sankar sees retail spending hitting $4.2 trillion in 2020 and rising to more than $6 trillion by 2023. He assumes Apple Card market penetration to double to 2.1% over the same period.
Sankar is maintaining his 12-month AAPL price target of $133, which is based on a 25x earnings multiple on Apple's core hardware products and a 41x multiple on Services.
Shares of AAPL were trading at $114.74 on Monday morning, up 1.50% in intraday trading and 1.64% since Sept. 8.
Credit: Apple
In a note to investors seen by AppleInsider, lead analyst Krish Sankar notes that Apple's digital payment platforms are a "fast growing but underrated part" of the company's services business. The category includes Apple Pay, Apple Card, and Apple Pay Cash.
All three payment services have, collectively, shown growth of around 100% year-over-year, the analayst said. The ongoing coronavirus pandemic also appears to have accelerated growth and adoption of the financial technology (fintech) services.
"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 writes.
Within Apple's fintech segment, the analyst expects Apple Pay to remain the cornerstone. The platform could see increasing acceptance at U.S. retailers, and Sankar predicts that the contactless payment service will be the largest revenue driver over the next few years, with an expected $800 million in growth annually.
Sankar sees Apple Pay growing at an 18% compound annual growth rate (CAGR) through 2023, and markets such as Asia and Europe could allow for even further expansion.
The Apple Card, largely off to a slower-than-expected start, could take over as Apple's primary fintech growth driver after 2023. Cowen predicts that Apple Card could grow at an 89% CAGR to $1.2 billion by 2023, based on a "conservative 2-3% penetration rate into digital-based global retail spending."
The analyst said he believes Apple receives a 1% fee for all transactions made with Apple Card. That's in-like with other card issuers, but could end up "the most lucrative opportunity longer-term compared to the Pay and Cash products."
Apple Pay Cash, the company's peer-to-peer payment system, is also very "complementary" to Apple's other fintech products. Cowen is modeling that Apple Cash will see growth, but may remain under $100 million over the next few years. That's because only a small percentage of cash transfers are "instant," which is the only type that generates revenue through a 1.5% transaction fee.
Cowen is modeling that growth from the Apple Card and market penetration in North America could see Apple's fintech segment becoming the next multi-billion dollar business by 2022.
"We expect Apple to remain focused on penetrating the North American market and ultimately the European one as well given the high usage of credit cards and different forms of digital payments including online and mobile/contact-less payments," the analyst wrote.
Taking a broader view of the $25 trillion global retail spending opportunity, Sankar sees retail spending hitting $4.2 trillion in 2020 and rising to more than $6 trillion by 2023. He assumes Apple Card market penetration to double to 2.1% over the same period.
Sankar is maintaining his 12-month AAPL price target of $133, which is based on a 25x earnings multiple on Apple's core hardware products and a 41x multiple on Services.
Shares of AAPL were trading at $114.74 on Monday morning, up 1.50% in intraday trading and 1.64% since Sept. 8.
Comments
This fintech service though will be good. Definitely. I love Apple Pay and Apple Pay Cash. It needs more places it can be used though both online and physically. I love using my watch to pay for things and the occasional ATM access. I'm still on the fence about Apple Card right now but I'm sure I'll get one in the near future. Apple needs to throw some manpower at the fintech stuff and grow it before the other Financial institutions get some old crooked politicians who don't understand tech to force their way onto our NFC chips.
These predictions are dumb. Like saying Disney will fail, but saying this in 1924.
I think the attraction of Venmo may be that it runs on Android or iPhones. Other than that, it seems to be inferior to the Apple products. But, if you're a one man shop trying to be paid via a FinTech app, Venmo might suck, but almost everybody can use it (if they are willing to stoop that low).
I think the problem is, less people know how much more secure Apple Pay and Apple Pay Cash are. People think it's "just another" money app. Apple really needs more focus on this space and more ads to nail in the fact that it's the most secure system out there.
Yes, very true.... Finally, after years of holding back my friend let me set up her iPhone with Apple Pay (so she could use Apple Cash) but she has still refused to use Apple Pay! She thinks it's less secure than swiping her card at the gas pump!
I've explained to her that even my own credit card company suggested I use Apple Pay because it is more secure than their chip card, but I get no response.