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3 Companies That Could Lose to Apple in P2P Payments

By Evan Niu, CFA – Jun 6, 2017 at 2:05PM

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Deep integration will be the Mac maker's biggest advantage, as usual.

Peer-to-peer (P2P) payments have been taking off, and Apple (AAPL -2.01%) wants a piece of the action. That was one of the big announcements from Apple's WWDC 2017 opening keynote yesterday for iOS 11, which will integrate P2P payments directly into iMessage. Funds will be stored as Apple Pay Cash, which can then be spent or sent to other users; you can also transfer money to your bank account.

Here are three possible losers following Apple's big foray into P2P payments.

As the market leader, PayPal has the most to lose

PayPal's (PYPL -2.68%) Venmo subsidiary -- eBay acquired Venmo's parent company Braintree back in 2013, which was included as a part of the PayPal spin-off -- has become the dominant P2P payment service, particularly among younger demographics. Venmo has even achieved coveted verb status: "Can you Venmo me $15 to split the dinner bill?"

Venmo has seen tremendous growth in usage, as measured by the service's total payment volume (TPV):

Chart showing Venmo's TPV growth

Data source: SEC filings. Chart by author.

Venmo has processed $21.2 billion in TPV over the past four quarters. The service's soaring popularity has attracted plenty of attention, and even the big banks are scrambling to catch up by partnering to create Zelle, a competing P2P payment service that launched earlier this year.

P2P Apple Pay will be exclusive to iOS devices, while Venmo is a cross-platform service that is also available on Android. That will be one critical line of defense, but Apple still threatens to take a bite out of Venmo's TPV growth.

Illustration of Apple Pay Cash card

Apple Pay Cash card. Image source: Apple.

Square Cash is already losing money

Square (SQ -4.82%) launched its own P2P payment service, Square Cash, back in 2013 as a predominantly email-based service. It has since evolved into a mobile app that also stores funds in a virtual debit card. Like Venmo, Square Cash supports both iOS and Android.

However, Square does not disclose payment volumes for Square Cash, which it considers a "non-revenue generating activity." Square Cash is also bleeding money for the company, as Square has been facing rising costs associated with the service; costs associated with Square Cash rose $4.7 million in 2016, on top of an $18 million increase in 2015 (Square doesn't disclose these costs in absolute dollars, only the increase).

Snap's (SNAP 1.65%) Snapchat added Snapcash in 2014, which used Square Cash to process P2P transfers. By partnering with a third-party provider, Snap could avoid some of the regulatory burdens of operating a payment service, and Snapcash is clearly not a priority for the freshly public photo/video sharing platform. Snapcash is not enabled on Snapchat by default, nor has Snap recognized any revenue from Snapcash to date. (And no, your money doesn't disappear after a few seconds.)

The social juggernaut has high hopes

P2P payments are also an important aspect of Facebook's (META -3.08%) messaging strategy. The social network added payment features to Messenger in 2015, and more recently added group payment capabilities. Messenger payments use regular debit cards to process transfers directly to and from users' bank accounts.

However, Facebook's messaging monetization strategy doesn't appear fully baked, and there is more financial opportunity in connecting businesses with customers to facilitate interactions. The presumed link is that once Facebook has built payments processing infrastructure, it could dabble in e-commerce by processing payments for businesses.

Apple's advantages

There are plenty of other P2P payment rivals out there, but these are some of the more visible contenders that have been gaining traction recently.

Person using Apple Pay on a MacBook and iPhone

Apple Pay is expanding. Image source: Apple.

As usual, Apple's biggest advantages are its ability to deeply integrate the service across its expansive portfolio of products and services combined with the sheer scale of its user base. 

It also helps that Apple doesn't really need P2P Apple Pay to be a profit center, since it can derive strategic value by providing a service that is more secure and easier to use, albeit within the confines of its own walled garden.

Evan Niu, CFA owns shares of Apple and Facebook. Evan Niu, CFA has the following options: long January 2019 $20 puts on Snap Inc. and long January 2018 $120 calls on Facebook. The Motley Fool owns shares of and recommends Apple, EBAY, Facebook, and PayPal Holdings. The Motley Fool has a disclosure policy.

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