Apple Payments - Timeline, trends, and Thoughts. Apple is pretty epic

Apple is one of the world's greatest consumer products company and probably has one of the top brands in the world if not the #1. My boyfriend is a huge freaking fan of them as a user — he owns tons of Apple products and loves getting the new ones. He even attends those developer conferences... I'm more low tech (lol) but more am just admiring them from a business point of view, because they invent new products, have the most secure brand, and have incredible physical and retail presence. In that sense I think they are freaking cool! And smart, because they're both software and hardware - with a crazy cultish sense of loyalty and engagement (referencing my boyfriend here). Their ecosystem is like a black hole - once you're in, you're in. For good.

Apple is the largest online retailer in the US

This is a fact I did not know! And by a LOT too.

Apple earns 2x+ what Amazon earns! What's really driving it is its App store...

their App store alone in 2020 earned $519 billion in pass through sales (RIP App store tax and exclusive in-app purchase rights), while Amazon did $328 billion. In direct sales, Apple did $124 billion. Apple Pay's revenues were even smaller than what it earned in direct sales - a huge growth opportunity here. Hence, Apple's many-year-long-dive into the financial services ecosystem.

Google 10 years ago made 5x more on IOS than Android. Today that number is closer to a 1:1 ratio but Google has also focused a lot less on payments since and implemented “Google Tax” similar to "Apple tax". rip.

Apple's biggest win will be in ApplePay - because Apple's greatest asset is its ability to influence consumer behavior. Payments itself is not super interesting - having influence over the surrounding ecosystem is the biggest power play.

A bit of a timeline here:


2012: Apple Wallet

Wallet was introduced as Passbook with iOS 6 on September 19, 2012 after Apple spent years acquiring patents in the financial services realm

2014: Apple Pay

Joined forces with Visa, Mastercard, and Amex for tokenization (data, security) purposes. Also worked with big banks like JPMorgan Chase to help create Apple Pay. Apple Pay was launched September 2014 at the iPhone 6 event - phone payments revolutionarily presented despite it not being an actually novel concept globally. Retail stores started adopting Apple Pay like Starbucks.

2018-2019: Shifting towards software and services

Apple started shifting towards software and services. Hardware sales aka iPhone sales slowed down a bit while the company slightly pivoted

2019: Apple Card

Apple and GS partner to launch the Apple Card. Released September 2019

2021: Apple and Goldman partner for BNPL play

Goldman being the lender. Puts them in competition with Affirm/Afterpay - a huge and growing market.

2/2022: Tap to Pay

Apple partners with Stripe to empower US businesses to accept contactless payments through iPhone Tap to Pay. All you need is an iPhone and iOS app. This service doesn't actually process payments it just replaces hardware that reads credit/debit numbers. They're using Mobeewave technology to enable contactless payments using NFC technology aka replacing Square's dongle but not in itself a payments service. Apple isn't offering the software payments ecosystem that Square/Block offers alongside its hardware such as invoicing, banking, etc.

3/2022: Apple acquires Credit Kudos for ~$150-200 million

Also releases news that they want to bring payment processing technology in house. This gives Apple data aggregation tools

So much payments potential does Apple have?

If Apple Pay accounts for ~5% GDV, just currently with $124 billion in direct sales, that's ~$500 million. With another $643 billion of pass through App Store sales, that's another $2 billion!

Some stats on Apple Card's success

  • best performing card for Mastercard, highest in customer satisfaction

  • 43.9% mobile payment market share in the US

    • payments service accounted for 92% of all mobile wallet debit transactions in the US last year

  • 6.4 million users as of late 2021, grew 3.3 million in a year

    • almost 50% users are women

  • 74/top 100 US merchants accept Apple Card as a payment option

    • 65% of all US retail locations do as well

Trends supporting Apple Card

  • increasingly wider retail adoption

  • rise of mobile wallets

  • rise of contactless payments

  • newer generations have higher % of credit card holders --> credit cards aren't going anywhere!!!

    • in 2016, <1/3 of millennials had a credit card

    • now, 2/3 have at least 1 credit card, and 40% have 2 more

    • ~22 million Gen Z aged 21-25 --> 57% have at least 1 credit card

    • Apple Card actually captures both ends - both Gen Z and millennials, which is something very hard to do!

I mean...

Focus areas for Apple:

  1. expanding geographically

    1. they are mostly dominant in the US right now

    2. pursue local partnerships and schemes e.g. India's UPI, Chile, Qatar, Costa Rica

    3. Credit Kudos is UK based - perhaps UK is their next major land and expand

      1. 6 out of 10 people in the UK used Apple Pay for POS payments in 2021

  2. providing the best customer experience possible

    1. per Credit Kudos acquisition for financing options like BNPL

    2. reduced network costs, and costs in general. reduce friction!

    3. integrations into third party softwares and local vendors

    4. experience is critical because anyone can build a payments business given the right expertise and money. experience is what differentiates. everyone is trying to do this, e.g. Klarna, Paypal, Square.

    5. Apple is doing something epic where they only offer rewards with partnered retailers, and the rewards are given in the form of Apple cash to be used in the App

  3. goes without saying but obviously Apple should and definitely will own all the payments data.

    1. Monetizing this will be another revenue line for them... Card partners would probably kill for access to their data in regards to improving customer experience and reducing fraud. Apple tbh probably will build some sort of monopoly... but a topic for another day.

Graphic below on how Apple makes and eats its cake. Nom nom.

Because of this, Apple will not become a bank or go really deep into payments tech... that's totally not their value proposition. They won't take over V/MA and ruin all other businesses.

There is more than enough room for them to grow and excel and partner with everyone else to actually make more money.

Apple currently makes ~15bps from partner banks... How epic is that? Google doesn't even get those economics.

Although I will note that Apple does not charge retailers and e commerce players. Which is better because that's literally their distribution method. Aligning interests!

All of this is likely to drive more iPhone sales anyways - what Apple is known and loved for.

Despite Apple clearly shifting its focus away from hardware/iPhones right now to focus more on software and services, it's likely a temporary pivot in order to eventually come back to feeding iPhone sales.

Everything again, to create a massive Apple ecosystem so they can have a choke hold monopoly on all our lives.

BUT It is very worth mentioning that Apple is very much a closed ecosystem. Everything here has been pro Apple thus far. But as much as they own the consumer identity, they are also game master - they are gatekeepers. This is a weakness that will become more clear in my post about Google...