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Apple Pay is Turning into a Massive Win

Apple Pay

Written by Ophir Gottlieb and Jason Hitchings

Not too long ago headlines called for the end of Apple (NASDAQ:AAPL). The stock crossed below $90, was on the verge of breaking critical technical support levels and the headlines would have had you believe it was headed much lower.

Facebook (FB), Amazon (AMZN) and Google (GOOG) were all touted as "the Next Apple." But it's the "current Apple" that has the goodies.

While we could focus on the stunning news that Apple broke surrounding iPhone demand, we want to focus on a lesser known segment that in the future could in and of itself be a business line as large as the any bank in the world.

News broke from Tech Crunch that while Apple Pay is available in six countries right now, Apple has its eyes set on the rest of the world. Jennifer Bailey, VP of Apple Pay, told Tech Crunch:

We're working rapidly in Asia and also in Europe, our goal is to have Apple Pay in every significant market Apple is in.

Source: Tech Crunch

Bailey went on to say that Apple Pay is "seeing incredible user and developer reception." Apple Pay now covers 2,500 bank locations in the U.S., up from an initial six. But that isn't the story -- this is:

In an aggressive and shrewd move, we have learned from Re/code that Apple will be bringing its Apple Pay to mobile e-commerce sites, and then an even larger disruption. First step one, then step two:

Apple's payment service [will allow] shoppers to complete a purchase on mobile apps with their fingerprint rather than by entering credit card details.

The move would pit Apple more directly against PayPal.

Source: Re/code

What does disruption mean? In both use cases, Apple has "killed the password." At first blush it may not sound sexy, but friends, upon further review, we will see that this is $300 billion worth of sexy.

Just a month ago, Apple revealed to the world that it had an active install base of over 1 billion devices. That's 'b' for billion.

The sheer size of the just 'mobile pay' market will be absolutely explosive. Transaction volumes are projected to hit $700 billion in yearly sales by just 2020, according to a study by Statista:

But that's the infancy. Here is Bank of America's take:

By the year 2022, the mobile payments growth will reach a combined total of around $3 trillion. That measures fully 200 fold in just seven years.

But now Apple is also turning to the desktop with Apple Pay, and that means we now are looking at Visa (V), MasterCard (MA) and PayPal. More than half of online retail purchases still happen on desktop and laptop computers (Re/code).

Here's the mobile pay market share data we have for 2014 and 2015 just looking at phones:

All told, Apple's iPad and iPhone control a staggering 65% of market share.

Add the payment capability to mobile e-commerce as well as the desktop and laptop e-commerce world and we're looking at a business line that in and of itself could be worth more than $300 billion in market cap.

Facebook, Alphabet's Google and Amazon are all chasing the mobile pay trend. But Facebook saw mobile payments actually decline in the quarter ending Decmeber 2015, and remember, Facebook has no hardware -- that's no watches, no phones, no desktops and no laptops.

Google recently created Android Pay:

Forget your wallet[.] With Android Pay you can simply unlock your phone, place it near a contactless terminal, and you're good to go. Tap and pay is that fast, that easy.

While Google certainly has Android out there for phones and tablets, we can hardly call its Chromecast a hardware to be reckoned with. This move by Apple is combative and attacks Google and its mobile pay hopes at its infancy.

Amazon's Wallet was a failure and nobody thought much of it. But Amazon is back -- behind or not, with over $70 billion in retail sales, the company will likely stop at nothing to win. But even the mighty Amazon has recognized the power of Apple's one billion device install base.

We saw the mobile pay markets -- measured in trillions of dollars soon. But let's look at Visa, MasterCard and Paypal. The three companies have combined market caps of about $330 billion, or more than half of Apple.

Apple Pay is already exploding. Here are few recent snippets from Apple. The first is from CEO Tim Cook on the earnings call for calendar Q4 of 2015:

In the second half of 2015, we saw [] a growth rate ten times higher than in the first half of the year.

Source: Re/code

Yes, he said ten times higher growth in six-months.

Further, in January we learned that Apple Pay is coming to ATMs from Bank Of America and Wells Fargo (Tech Crunch).

And then there's China. Check this out:

Apple Pay hit three million provisions inside its first three days in China, while, more generally, it is adding one million new users per week worldwide.

Source: Tech Crunch

Together the enormity of Apple Pay through mobile with the functionality of "touch your monitor and now you've paid" promise of Apple Pay on desktops and laptops, we could be looking at a business line that, as of Apple's price today, could be worth an additional 30% of Apple's value.

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The author is long Apple shares. Thanks for reading, friends.

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