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PayPal Holdings Inc.’s shares took a hit last week when a media report said Apple Inc. plans to launch a mobile-browser version of its Apple Pay service, potentially making Apple Pay a stronger competitor to the online and mobile-payments leader. But a payments analyst says any new competition from Apple appears unlikely to damage PayPal.
Apple has to overcome three high hurdles before it can seriously challenge PayPal, which had $20 billion in mobile-payments volume last year, says Larry Berlin, a vice president at Chicago-based First Analysis Securities Corp.
“One, they have to sign merchants; two, they have to sign up users,” Berlin tells Digital Transactions News. “And I would say a lot of people who use Apple don’t use Safari.”
Safari, of course, is Apple’s Web browser for its Mac desktops and laptops, and iOS mobile devices, including the iPhone. Berlin didn’t have numbers, but based on anecdotal evidence says many Apple customers use other browsers, including Google’s Chrome or Mozilla’s Firefox. “A lot of people I talk to use something besides Safari,” he says.
A March 23 report in the Re/code tech-news service said Apple plans by the 2016 holiday season to expand Apple Pay’s capability beyond the Apple Pay mobile app to Web sites for iPhones and iPad tablets equipped with Apple’s TouchID fingerprint technology. The news triggered a nearly 4% slump in the share price of PayPal, which dominates browser-based purchases.
“We view competition for online payment as strong already, and while Apple’s moves are always worth watching, we believe it will take much for it to compete effectively, including gaining consumer usage as well as merchant adoption,” Berlin wrote in a report issued Sunday. “As a result, the potential competition does not alter our view that PayPal should remain a dominant payment service for online payment for the foreseeable future nor does it alter our view of the stock.”
Like many other observers, Berlin notes that so far Apple Pay hasn’t gotten much traction since its late-2014 introduction. A recent study by First Annapolis Consulting Inc. found that only 20% of iPhone 6 holders had used Apple Pay at least once, and, among that group, only 15% use the payment service regularly. Users, however, tend to be satisfied with Apple Pay, First Annapolis found.
Meanwhile, Apple Pay, which in addition to biometrics uses near-field communication (NFC) technology to exchange communications between the Apple device and the payment terminal, was accepted by only about 1.5 million merchants at the start of the year. PayPal, meanwhile, claims to have “millions” of merchants, including half of Internet Retailer’s 500 leading online merchants.
PayPal also has 180 million users, and 10% of them use its One Touch single-click checkout feature, according to Berlin.
“In our view, competition in the online-payment space has been continuous, with PayPal, the credit card companies, and others trying to attract users,” the report says. “The arrival of Apple does not change our view that PayPal will remain a dominant player (not the dominant player since credit and debit cards still prevail) for the foreseeable future. As a result, we see the competition as something to watch but not a reason to reduce our valuation of the stock.”
