If Apple $AAPL really wants to give companies like PayPal $PYPL a run for their money, it needs to give Americans want they want: old-fashioned plastic cards.
The opportunity for Apple’s payment business to win over consumers could be slipping away. CEO Tim Cook told analysts this week that Apple Pay handled 1.8 billion transactions in the last three months of 2018, twice the number from a year earlier. But only about 12% of the 383 million Apple Pay users around the world are based in the US, according to data from Loup Ventures. Winning over the American consumer is only going to get more difficult as contactless payment cards roll out this year.
Contactless payment terminals have popped up around the US, giving smartphone wallets (and devices like the Apple Watch) a chance to catch on before near-field communication (NFC) is widely enabled on payment cards. But in a survey of smartphone users by Juniper Research, only 14% of respondents said they use a wallet provided from the likes of Apple or Google $GOOGL. ”The window of opportunity in the US for mobile payment providers like Apple Pay and Google Pay is closing fast,” according to the technology research firm.
Now, contactless cards are coming. JPMorgan $JPM Chase, the biggest issuer of Visa $V cards, plans to have widely rolled out contactless-enabled cards by the end of the year, Visa’s CEO said this week in an earnings call. Wells Fargo $WFC and Bank of America $BAC will start issuing them by the summer, and retailer Target $TGT has also enabled contactless payments for Visa cards. The card network has said it will have 100 million contactless cards in the US by the end of the year, which is more than double the number of Apple Pay users in America.
Other geographies, like the UK, where contactless payment are ubiquitous, show that cards have much greater traction so far than smartphone wallets, Juniper research shows. Consultancy AT Kearney has also noted that NFC tech tends to benefit plastic rectangles than smartphone wallets. The switch to contactless could boost annual card payment volume by $78.4 billion by 2021, according to the firm’s estimates.
The payments business could be important for Apple, which is trying to overcome smartphone saturation (it gets harder to sell iPhones when so many people who can afford them already have one) by expanding its already impressive services business. Global payment revenue is expected to swell to $3 trillion in the next four years, up from $2 trillion in 2018, according to consulting firm McKinsey. Getting fees from even a sliver of those flows is an enormous opportunity for Apple.
Not everyone thinks the door is closing for Apple Pay. The company announced last month that it signed up Taco Bell and Target (Target previously said it had no plans to adopt Apple Pay). That means 74 of the top 100 US retailers by revenue, and 65% of all American retail locations, now accept Apple’s digital wallet.
Loup Ventures analyst Gene Munster says a debit card could provide a short term boost, but would be out of character for the tech company. “The opportunity more broadly for the digital wallet is still open ended,” he said. ”Eventually it replaces the physical wallet. Not only with payments, but for other things that are in a wallet. Is that five years or 50 years from now is the more relevant question.”
Strapping a debit card to a digital payment service is nothing new. Square $SQ has one, as do PayPal, Venmo, and other fintech firms around the world. And while Apple has a history of selling customers products that focus on the future, maybe that strategy won’t work as well in consumer finance. In reflecting on his days at PayPal (which already had a debit card), co-founder Elon Musk told writer Ashlee Vance that this kind of thinking is all wrong:
There were a bunch of things that should have been done like checks. Because even though people don’t use a lot of checks they still use some checks. So if you force people to say, ‘Okay, we’re not going to let you use checks ever,’ they’re like, ‘Okay, I guess I have to have a bank account.’ Just give them a few checks, for God’s sake.
That’s not to say some people won’t like paying for things with their phones—it’s the norm in China, after all. And payment cards don’t matter when it come to peer-to-peer payments or (perhaps) online purchases, which account for a rapidly growing share of transactions. Visa said in its earnings call that e-commerce is expanding more than three times faster than offline sales. Debit cards may well become less important over time.
But consumers typically avoid moving their financial accounts and tend to be faithful, even when they dislike the service. An Apple debit card is a chance for the Silicon Valley-based company to give customers what they want—for God’s sake—before someone else does.
