Apple Bank

Jun. 07, 2017 4:48 PM ETApple Inc. (AAPL)102 Comments


  • At WWDC 2017, Apple announced a new person-to-person payment app in iMessage using Apple Pay.
  • Person-to-person payments creates the Apple Pay Cash Card. Stored money on this cash card could add over $7 billion to Apple's coffers.
  • The potential upside is from the bypassing of credit card companies by getting users to spend cash. Instead of capturing 0.15%, it could be 9 times more.

Apple (NASDAQ:NASDAQ:AAPL) Pay Cash Card could increase Apple's take-rate by 9 times, thereby accelerating the future growth of Apple's Services revenue segment. With Apple Pay growing at 500% y/y, in a few years, Apple Pay Cash could add an incremental $1 billion to revenue. And given the infrastructure and cost per transaction not likely changing, we believe that most of this $1 billion will drop straight to the bottom line. That's a 2% incremental increase in net income in a few years.

Apple Pay

Apple Pay is the #1 contactless payment service on mobile devices. By the end of 2017, 50% of US retailers will accept Apple Pay.

At WWDC 2017, Apple announced a significant upgrade to Apple Pay, person-to-person payments coming in the Fall of 2017 when iOS 11 goes live.

Apple Pay revenue is reported under Apple's Services segment. In total Services consists of revenue from Digital Content and Services (iTunes, App Stores, iBooks, Apple Music), AppleCare, Apple Pay, licensing and other services. In 2Q17, Services generated $7 billion in revenue, +17.5% y/y and $26.5 billion in the last 12 months, +20% y/y.

Prior to the introduction of Apple Pay in October 2014, Services reported revenue of $18 billion in 2014. We believe Apple Pay has only been a small contributor to the growth of the last 2.5 years, but its contribution is all incremental.

The app will be integrated into the iMessage app, so sending money is only a couple of taps and a Touch ID authentication away, directly in your conversation.

Source: WWDC 2017 Keynote

Challenges & Competition

Historically, Apple Pay has seen arguably slow uptake due to a lack of contactless payment adoption in the US. According to Plug and Play, mobile wallets like Apple Pay don't provide enough value to consumers and merchants, yet. When mobile

This article was written by

SMRE is authored by a CFA Charterholder, who worked in Sell Side Equity Research for 4 years.SMRE's philosophy on investing has slowly evolved over time. Some of the lessons include: 1) A good nights sleep comes from investing in companies you understand and believe in. 2) "Time in the market beats Timing the market". 3) Make sure your investing style matches the person giving you a recommendation (i.e. long term, short term, etc.) Research is an educated guess on future outcomes. SMRE is here to share our assumptions on some companies we believe in. We hope you will challenge our assumptions! Recommended Reading List - A collection of investing and non investing books we recommend Made In America - Sam Walton Tuesdays with Morrie - Mitch Albom The Happiness Equation - Neil Pasricha Good to Great - Jim Collins Influence - Robert CialdiniTipping Point - Malcolm Gladwell

Disclosure: I am/we are long AAPL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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