Source: Alphabet
When it comes to mobile-operating systems, there are really only two companies that have significant market share -- the most dominant OS, Alphabet's (GOOG -1.10%) (GOOGL -1.23%) Android, boasts over 80% market share and Apple's (AAPL -1.22%) iOS takes the vast majority of the remaining market according to data from IDC.
These two companies tend to monetize their operating systems differently. On one hand, Alphabet generally uses data to augment its ad-based business model whereas Apple tends to mostly monetize its operating system by high-margin hardware purchases. In order to do so, however, these companies have to continuously work on perfecting their ecosystem.
One of the newer ways to keep users reaching for their smartphones, and to increase affinity, is the mobile-payments industry. According to marketing-data firm eMarketer, the nascent mobile-payments industry should grow and enrich investors for years to come.
Cash, card, or... phone?
According to eMarketer's data, 2016 will be a tipping point in terms of the mobile payment industry in the United States. The technology is estimated to grow from 23.2 million users in 2015 to 37.5 million users in 2016 -- a year-on-year user increase of nearly 62%, a figure bigger than one-tenth of the total U.S. population.
Perhaps the most important metric, however, is the percentage of smartphone users using the mobile-payment system and total mobile transaction value: eMarketer finds that figure will be 19% of smartphone users in the U.S., and these users will rack up $27 billion in transactions, up 210% from $8.71 billion this year.
Not only will mobile payments have more users, but the average spend per user will shoot up, per eMarketer's estimates, jumping from an average per-user spend of $376 in 2015 to $721 in 2016, a year-on-year 92% jump in yearly transactions. What seems to be occurring is an industry that's growing in both users and on a transactional basis.
A $27 billion market, who wins?
If eMarketer's estimates are correct, the mobile payments markets may be vast, but it does not appear to be a lucrative market for anybody. For Apple Pay, earlier reports were the company would net $0.15 for every $100 of transactions for credit card transactions. If the company truly dominated the mobile-payments market, meaning all $27 billion was transacted through Apple Pay, the company would book $40.5 million in revenue from the service. And while that sounds like a large amount, it's a footnote versus Apple's top line that approaches $225 billion over the last four quarters.
Apple Pay is the only major mobile wallet that charges on a per-transaction basis. Source: Apple
But as small as a revenue driver this is for Apple, at least the company is receiving something. Android Pay, on the other hand, appears to not make any direct money on Android Pay transactions, according to The Wall Street Journal. Alphabet also has an inter-device mobile-payments competitor, Samsung Pay, which also does not directly monetize transactions.
So while the rest of the credit card monetization chain would prefer Android-based mobile payment systems to win out in the end, it seems Apple Pay has the most to gain from the proliferation of mobile payments overall from these three payment systems. There just isn't a whole lot to directly gain. However, it seems these companies are treating the mobile-payments industry as mostly a catalyst to keep users attached to their ecosystems.
