Apple takes lion's share of US contactless payments

According to the term sheet, which was picked up by Sanjay Sakhrani, an equity analyst at Keefe, Bruyette & Woods, Apple will receive 15 basis points (0.15 percent) per credit card transaction, as well as a half a penny for each debit transaction. The contract also stipulates that issuers must make available at least 95% of the cards in their portfolio to iPhone users.

As per earlier Article dated November 5. 

After telecom provider getting most of the Clout from Mobile & SMS banking for unbanked, desintermediation in payment is going fast! 

The headline % figures look really effective. How appearances can be deceptive from a nil base any increase is going to be substantial. Furthermore when the CEO says business outside the US want ApplePay one has to question why they'd ask. Merchants look at the cost of each transaction and each market is different with a flat fee for debit cards in the UK so where is the economics for the merchant in this scenario?

Applepay revenues wont do anything to help diversify apple dependency away from IPHONE6  as  a percentage of overall revenues (they will look like a rounding error)

But its a great 'LOOK OVER THERE' play - Apple does have a window of opportunity created by the USA's  reticence to embrace EMV...  cant say we EMV advocates didnt send up warning flags....    

15 basis points doesn't sound a lot and it isn't as a proportion of US interchange rates.  But come to Europe where the EU is capping interchange at 30 basis points and the commercial model doesn't work.  Something will have to give in someone's margin structure or European merchants will face a new, separate charge to accept ApplePay.  

Good point Stephen.  Giving up 15 basis points from a capped interchange rate of 30 bps is a hard one to make up on volume.  

I'm not sure if the "80% share of mobile sales at Panera Bread" is a testament to the strength of ApplePay adoption or the weakness of every other option in the market currently.

"two thirds of contactless transactions" (in the US) says more about the penetration of contactless transactions in the US than it does about Apple Pay.

It'll be interesting to see the figures a few months after launch in somewhere like Canada, UK or Australia where contactless is already very well embedded, acceptance is (almost) everywhere and by the time Apple comes to market several banks will already have Android payment solutions in market.

Apple Pay will take it's place as the solution for Apple devices alongside cards and other mobile solutions. The proportion of overall transactions will be higher than the US due to much wider acceptance but the proportion of contactless transactions will be tiny, at least at a similar stage of the roll out.

Douglas - Apple Pay earns 15bps from the issuer and not the network providers. Thus for credit transactions, 15bps as part of the issuer free collected which varies from 1.25% is not a bad deal. Issuer gets to issue tokens for CP transactions. UK is the next market for Apple Pay and there is chatter about China considering international for phones has risen significantly for Apple especially China numbers overtake US. Apple Pay revenues are a pure rounding error in the larger strategy, however they have created a convenient, secure and trusting experience for iPhone6 model. Panera, Whole Food percent numbers look great (from a NIL) base, howeve before Apple there have been other wallets that a user could adopt including Google, PayPal and Samsung !! They have not been able to attract usage by phone users and this is a great breakthrough to dive mobile wallet usage at Retail POS.

I note the comment from Martin about the state of contactless in the US but it must be remembered their first try using stripe was also not exactly a success either.

The figures are impressive given how long it has taken the UK to roll out contactless cards post the London trial.

Finally the debate about capping of interchange meaning the Apple Pay model could not work in Europe speaks volumes that the European Regulators may have got it wrong if their avowed aims are more competition and a better deal for the consumer. The retailers reluctance to install the terminals in the US (MCX in particular) seems a familiar story I have heard before.I Europe psost the interchange cap, surely expenditure on allowing terminals to take Apple Pay could be part of the 'savings' retailers are going to pass on to the consumer.

David Evans a respected US economist has written some interesting articles on the basis (or lack of it) in economic theory for the interchange caps being imposed in Europe and stories like this suggest he may have got it right.

Vineet - Douglas's assessment is correct in that under the current model Apple are sharing in the interchange element which as you say is paid to issuers and thanks to the European Commission that interchange is fast shrinking and capped at 0.3%.  Can't see the issuing banks keen to give away 50% of their interchange ?

A revised post as I noted a typo above.

I note the comment from Martin about the state of contactless in the US but it must be remembered their first try using stripe was also not exactly a success either.

The figures are impressive given how long it has taken the UK to roll out contactless cards post the London trial.

Finally the debate about capping of interchange meaning the Apple Pay model could not work in Europe speaks volumes that the European Regulators may have got it wrong if their avowed aims are more competition and a better deal for the consumer. The retailers reluctance to install the terminals in the US (MCX in particular) seems a familiar story I have heard before.In Europe post the interchange cap, surely expenditure on allowing terminals to take Apple Pay could be part of the 'savings' retailers are going to pass on to the consumer.

David Evans a respected US economist has written some interesting articles on the basis (or lack of it) in economic theory for the interchange caps being imposed in Europe and stories like this suggest he may have got it right.