Cowen: Apple fintech don’t get the respect it deserves

Revenue from Apple Pay, Card and Cash, doubling and redoubling, will exceed $1 billion in 2020 says analyst Krish Sankar.

From a note to clients that landed on my desktop Monday:

The Apple Pay, Card, and Cash products (payments platform) collectively have shown robust 100%+ Y/Y growth in recent years and with the ongoing COVID-19 virus we believe usage and penetration of Apple’s digital payments offerings has only accelerated further. While Apple has portrayed these digital services as complementary to its mobile hardware platforms, we believe future scaling out of these services globally coupled with increasing depth and sophistication of them could position Apple as an emerging contender in the fintech space. We conservatively forecast overall Apple payments platform revenues will exceed $1B for the first time in CY20 and quickly exceed $2B by CY22. From an EPS perspective, contributions remain small at 2-3% of Services profits or $0.03-0.04. Our key takeaways are:

    1. Apple Pay is expected to remain the cornerstone of Apple’s payments platform strategy as the digital wallet continues to see increasing acceptance at US retailers (both physical and online). We forecast Apple Pay will remain the largest revenue driver at over $800M annually for the next couple years (~65% of payments platform) and growing at an 18% CAGR through FY23. We see scope for further expansion at European retailers as well as increased penetration in transit systems, especially in Asia.
    2. Launched in C2H19, Apple Card is the newest product within the payments business, and we forecast that it could become the largest revenue driver by FY23 growing at an 89% CAGR to $1.2B. This new revenue estimate assumes a conservative 2-3% penetration rate into digital-based global retail spending. We also assume Apple receives a 1% fee for transactions, a rate that we believe is in line with the average for card issuers and could be the most lucrative opportunity longer-term compared to the Pay and Cash products.
    3. Apple Cash provides a high demand feature to end users – peer-to-peer cash transfers, and is very complementary to the Apple Card given the cash back and cash management features. We model for Apple Cash revenues to grow but remain below $100M for the next several years as we assume only a mid-single digit % of consumer cash transfers are ‘instant transfers’ that could generate upwards of a 1.5% transaction fee.

Outperform rating and $133 price target unchanged. 

Cue Figures 1 and 2: :

apple cowan fintech respect

apple cowan fintech respect

My take: Growing 100% year, truth be told, from a vanishingly small base.

15 Comments

  1. Bart Yee said:
    I’ll take it as finally progress when major retailers like Walmart, Home Depot and Lowe’s finally accept electronic mobile payments. Despite having updated and NFC capable chipped card readers, they keep the NFC section turned off so Apple Pay, Google and Samsung Pay, and other electronic pay systems unavailable. Walmart can use their fairly primitive Walmart Pay system using scanned QR codes or some such. But I prefer NOT to give my payment method data nor my purchase transaction data to these retailers.

    I fully expect Apple Pay to keep moving deeper into the EU and other countries as their bank and CC systems realize they need to accept them for their better clients.

    I would be mightily impressed if Card continues on this projected upward slope. Another industry ripe for disruption, or at least pie sharing with Apple.

    2
    October 5, 2020
  2. Fred Stein said:
    His data exceeds my prior guesses at the long term potential of Apple Pay/Card/Cash… by a lot. Fig 1. Double by 2022 – Wow. And it will double again soon enough.

    Plus there’s a virtuous circle of having trusted, virus-free (in both meanings), quickest transactions whether on-line or on the wrist. As Apple Pay gets more popular, more 3rd parties join the ecosystem.

    3
    October 5, 2020
  3. Jerry Doyle said:
    I do hope we see Apple move more to being a multi-national financial services company in the coming years offering banking and personal investment options. Apple clientele are higher income and more disciplined financial responsible individuals presenting a lucrative market resource for growing additional revenues.

    3
    October 5, 2020
    • Fred Stein said:
      Yes, I’m convinced this will happen for all the reasons you mention and perhaps one more. Apple and Goldman Sachs could provide significantly better currency exchange rates. Well heeled shoppers make big purchases when traveling, especially in duty free shopping, and especially in cultures where gifting confers status on the giver.

      0
      October 5, 2020
    • Dan Scropos said:
      Jerry, what about the ability to turn Apple Cash into Apple shares? With virtually every brokerage house offering denominations less than a share, why not the ability to buy Apple shares? I, for one, would turn my Apple Cash into Apple shares. Anyone else?

      0
      October 5, 2020
  4. Fred Stein said:
    One more.

    In June Apple announced interest-free loans, plus 3% rebate, to buy Apple devices. Beyond the obvious benefit of stimulating sales, this starts Apple down the path of consumer (and business) lending. It also sets up. AaaS, Apple as a Service, where consumers and businesses pay monthly, removing friction for device upgrade sales.

    0
    October 5, 2020
    • Robert Paul Leitao said:
      Fred:

      This has been the reality for years for those of us on the iPhone Annual Upgrade Program. Subscribers have received 0% loans through Citizens Bank since the inception of the program. Using the GS Apple Card, subscribers can now receive 3% cash back on all associated payments and charges, including the monthly payments through Citizens Bank.

      As a subscriber, I pay for the equivalent of one iPhone over two years and receive a new iPhone each year. My monthly payments vary little from year-to-year and will vary only if I change the model or the amount of storage on the iPhone I acquire each year.

      This is more disruptive than most may realize. My monthly iPhone “subscription” payment combined with the cost of the forthcoming Apple One Premier tier services and the costs of my non-Apple streaming services (Disney+, Netflix and Hulu+) are less in total per month than I was paying for cable alone six or seven years ago.

      So, as you point out, AaaS is already a factor in how consumers apportion their dollars for communication and entertainment.

      3
      October 5, 2020
  5. George Row said:
    Since lockdown started in March almost all my in-person transactions have been via ApplePay. Before that my ApplePay transactions had mostly only been at the local AppleStore.
    In other places, the cashiers used to look at me blankly when I started waving my phone at their card reader. Now, even in the places where they have to push a button on their cash register to initiate the transaction, they smile, glad not be getting handed my, potentially infectious, cash or card.

    1
    October 5, 2020
    • Robert Paul Leitao said:
      George:

      A retailer’s decision to offer Apple Pay influences where I choose to shop. I give preference to stores that offer Apple Pay. Not only is it an issue of 2% back on my purchases, the GS Apple Card has the most intuitive transaction reporting among the cards I carry.

      0
      October 5, 2020
      • Alan Birnbaum said:
        Comments on the frictionless ‘Hand waving’ model that Amazon proposes to roll out …….

        0
        October 5, 2020
        • Kirk DeBernardi said:
          @ Alan Birnbaum —

          Yet another biometric purchase verification brought on by one of the Big Boys — to which I say, bring it on.

          At first I thought it was a hand placement technology, but that it’s all scan-based, I see no harm.

          When you get right down to it, these little rectangles of plastic (metal ☺️ ) most of us carry perform the same routine. A process of “Yes, it’s me — and — yes, it’s my money.”

          I’m all-in for killing the little-rectangles-of-plastic of yesteryear, especially in turn for the WATCH–iPhone–palm–retina of the future.

          0
          October 6, 2020
      • Kirk DeBernardi said:
        @ R. P. Leitao —

        After this waiting period for retailers to catch up to the payments future where Apple and others are leading them, I never thought I’d be brought to FAVOR a retailer just because of their adaptation of Apple Pay…

        …I was wrong — ☺️

        3
        October 5, 2020
  6. Arthur Cheng said:
    Here in SE Asia (specifically in Singapore and HK, where I spent most of my time), Apple Pay is everywhere. They don’t necessarily advertise it, but most places will take NFC payments (they call that PayWave in SG), and will accept Apple Pay. I hardly need to use cash anymore, and with my Apple Card, I almost never use my other CC these days. Much deeper penetration than in the US.

    3
    October 5, 2020
    • David Emery said:
      I’m reminded of debit card payments 25 years ago. That was much more advanced/widespread in Canada in 1995 than it was in the US. US caught up in a couple of years and of course debit card payments are ubiquitous here now.

      0
      October 6, 2020
  7. David Drinkwater said:
    I don’t really know how to dig into this question (and I’m days late to the discussion, it seems), but how traceable is “Apple Cash”? Is it really a secure and untraceable as paper money? If I “send” someone Apple Cash, is there really no traceable record that that happened? It is an interesting and practical question. I’ve been trading nunyos for cash for years. 😉

    0
    October 7, 2020

Leave a Reply