Oct 29, 2015
On Tuesday, Apple reported selling 48 million iPhones in the fourth quarter. That’s a 22% jump from last year and a touch ahead of analysts’ 47.9 million-unit forecast. Phone sales accounted for more than 60% of Apple’s $51.1 billion in revenue — even before adding in the company’s earnings from phone-enabled services like apps and mobile payments platform Apple Pay.
The company does not break out revenue from its mobile wallet, instead lumping Apple Pay into a broad category that also includes Internet Services, AppleCare and licensing. Services revenue grew 10% from a year earlier to $5.1 billion. In a conference call Tuesday, Apple CEO Tim Cook told investors transactions on Apple Pay have grown double-digit each month and highlighted Starbucks plans to support the platform in all U.S. stores next year as a sign of more growth to come.
Overall though Apple Pay was little more than an after thought in Apple’s quarterly report. A few hours south, however, the Cupertino-company and its mobile payments solution were the elephant not in the room.
Close to 10,000 people gathered in Las Vegas this week for Money 20/20, an annual financial technology conference with a heavy emphasis on payments. Speakers included representatives from every major financial firm and executives from Facebook, PayPal , Google, Uber and other tech stars. Apple, on the other hand, had no visible corporate presence.
That didn’t stop Apple Pay, which went live around this time last year, from being the star of the show. Two panels were explicitly dedicated to analyzing how Apple Pay has done so far, while many others sessions dedicated to mobile wallets broadly made it clear Apple is the bellwether in this space (Samsung, Google and most recently JPMorgan Chase are among the companies that have come out with competing products.)
Has Apple Pay been a success worthy of the hype? If it isn’t a hit yet, can it be soon? The jury is out.
Bryan Yeager, an analyst at eMarketer, argues that 2016 will be the breakout year for mobile payments revenue and usage, and by proxy Apple Pay. Not everyone is sure that next year will be the year but nearly all payments insiders and analysts agree that an increasing percentage of our spending will happen on mobile devices. The opportunity, they argue, is too great for spending to not go mobile. The thinking is that consumers will flock to increased security, personalization and convenience. While merchants will benefit from higher sales conversion rates by, say, integrating loyalty programs.
Look at the success of Uber or Venmo. These companies made transactions that consumers were going to take part in any way — hailing a ride in the case of Uber and exchanging money among friends with Venmo – easier by leveraging unique features of mobile like the fact your phone is always where you are and the ease with which people can snack on bits of information from a small screen.
Numerous surveys show that consumers are aware of Apple Pay, and even that they would like to give it a try. Those same consumers, however, cite roadblocks to getting started or moving a meaningful percentage of their spending over. It is hard to find merchants that accept the payment, terminals can be glitchy and users are unsure where to turn to for assistance. Store managers often can’t help, so should people call their credit card issuer? Apple? Is it worth all that time?
More fundamentally, only Apple customers who own iPhone 6s can use the technology. Is Apple Pay compelling enough for people to upgrade or to switch from Android?
During a presentation Tuesday, Robert Flynn, head of payment services at consulting firm Accenture , asked an audience member who had paid via mobile since arriving in Vegas to load the app he used. At the same time Flynn pulled his wallet from a pocket and a credit card from its slot. The two men uttered done at the same moment. Flynn’s larger point? Tools like Apple Pay need to show more value to break the ubiquity of credit and debit cards — let alone cash.
According to a new survey from Accenture 67% of people use cash, 59% of people use debit cards and 50% use credit. Apple Pay usage? 8%. A September survey of 3,000 credit card users by Phoenix Marketing International shows 14% of credit card users adopting Apple Pay.
To people that claim that’s not success Mark Williams, president of financial services at Best Buy, points out that Apple and others are attempting to disrupt a form of tender that has been successful for decades.
Best Buy started accepting Apple Pay this month, a move some saw as a blow to MCX, a consortium of retailers Best Buy helped found to compete with Apple Pay. MCX’s CurrentC payment option will be integrated into Chase Pay when it launches next year.
“Apple Pay has the first mover advantage and the first mover disadvantage. They came out with something that by far led the world in mobile payments, ” Williams noted. Samsung, Google and others learned from what Apple created and were able to catch up. “Apple, as they always do with their hardware, will take a giant leap forward.”
It is also impossible to ignore the 48 million people who purchased iPhones – largely the 6 – in Q4. We can’t know precisely what convinced they to buy but the 1% bump in sales from Q3 presents an opportunity for Apple Pay.