Apple P2P Payments Aren't a Threat to PayPal or Square

Apple has a lot of users, but it's not a network.

Adam Levy
Adam Levy
Jun 17, 2017 at 12:00PM
Technology and Telecom

Apple (NASDAQ:AAPL) has a knack for coming into markets a bit late, but offering something innovative to drive user adoption. Unfortunately, such is not the case with its peer-to-peer (P2P) payments service announced at its Worldwide Developers Conference earlier this month. Apple is entering the market years after Venmo -- which PayPal (NASDAQ:PYPL) acquired in 2013 -- and Square's (NYSE:SQ) Square Cash.

Its one advantage is that it's built right into iOS. When it comes to network-based services, though, that can be more of a challenge than an advantage. Granted, Apple's goals with peer-to-peer payments are different than PayPal's or Square's. Apple isn't looking to make a direct profit off of payments; it's just looking for another way to lock users into its ecosystem. Still, it doesn't make Apple much of a threat to other payment services.

Tim Cook presenting at WWDC 2017

Image source: Apple.

The most popular messaging app didn't make a dent

Facebook (NASDAQ:FB) introduced P2P payments in Messenger in the first quarter of 2015. It was fast, easy, and readily available to over 600 million users. All they have to do is connect a debit card -- the same requirements of Venmo and Square Cash. Messenger's users have since doubled to 1.2 billion.

Nonetheless, payments in Messenger haven't slowed down the growth of incumbent P2P solutions. Venmo's total payment volume grew from approximately $1.3 billion in the first quarter of 2015 to $6.8 billion last quarter. Square doesn't report payment volume for Square Cash, but it does note that its costs associated with the product continue climbing, up $4.7 million last year and $18 million in 2015.

This trend begs the question: If the integration of payments in the most popular messaging app in the world hasn't make a dent in Venmo or Square, why would Apple be any different? Unlike Messenger, iMessage is only available on iPhone. It's a lot bigger of an ask to get someone to buy a whole new phone than to download another app so you can send them $20.

Video source: Apple.

There's no incentive to use Apple Pay over competitors

Apple uses the exact same cost structure as Venmo and Square Cash for its payments service. It's free to use a debit card or bank account, and users can pay a 3% fee to use a credit card if they want.

Furthermore, there's no additional incentive to use Apple Pay. Samsung (NASDAQOTH:SSNLF) rolled out Samsung Pay Rewards earlier this year, which rewards users for each purchase they make using its payments platform. That makes Samsung Pay significantly more attractive than comparable payments platforms (because who doesn't like free stuff?). It could be the deciding factor for people choosing between Android Pay and Samsung Pay.

Apple's goal with its payments platform is the same as Samsung's: attract more consumers to its devices. It's not looking to make a profit directly from payments like PayPal or Square. It could, in fact, afford to take a perpetual loss on the service if it paid off in more device sales and the usage of other Apple services. As such, Apple ought to consider a rewards program along the lines of Samsung's. If it did, it would become much more of a threat to incumbent P2P payments platforms.

Overall, P2P payments with Apple Pay is a nice feature, but by no means a game changer. PayPal and Square shareholders have nothing to worry about.