With iPhone sales growth down from a 2015 peak, Apple may turn to other services such as digital payments to make up for the decline in sales of its biggest revenue-generating product.
That’s why a Bloomberg report last week that Apple is developing technology that would enable merchants to process transactions without the need to use any special equipment is drawing attention. Cupertino, California-based Apple may introduce the transaction processing service as a software update in the coming months, according to Bloomberg.
Among the companies that could be hurt by such a move would be Block, formerly known as Square, which is still the brand name for its popular POS reader. Block is best known for that small credit card reader that has become a ubiquitous presence in small businesses.
While Block has been a major player with its Square service, other fintechs have jumped into the point-of-sale market with new wares and services for merchants. San Francisco-based Square ranks tenth among payments software companies, trailing PayPal and Stripe, among others, according to market research firm Datanyze.
Block is likely betting that its $29 billion acquisition of the Australia-based buy now-pay later company Afterpay last year will improve its fortunes.
"Every five years or so, a lot of these merchants find somebody cheaper and then they just switch over," Baird analyst David J. Koning said in an interview.
"If you're using your iPhone, and it's got acceptance technology in it, I would imagine that somebody still would need to use an acquirer to actually connect to the Mastercard and Visa rails," said Koning, who has an "outperform" rating on Block. "Every merchant or individual needs to keep track of all the transactions that go through their device."
Spokespersons for Apple and Square didn’t return emails seeking comment for this story.
Seeking bigger role in payments
Apple has been eyeing the payments market for years. On the consumer side, the company launched a digital wallet called Apple Pay in 2014 and has dominated that market since then.
According to research firm Insider Intelligence, Apple Pay will have 47.2 million users in the U.S. this year, or roughly 43.5% of all proximity mobile users (defined as those who complete a transaction using a mobile phone to scan, tap or swipe). That number for Apple Pay users is up slightly from last year. Google Pay will rank second this year with 27.1 million users, followed by Samsung Pay with 16.8 million, the firm said.
Internationally, Apple Pay handles about 5% of global card transactions, with that figure expected to expand to 10% in 2025, estimated Bernstein, a division of the New York investment bank, according to a Quartz story which cited the research.
Luring merchant business
U.S. mobile proximity payment spending will reach $306.47 billion this year and exceed $500 billion in 2025 as both new and existing users shift more spending to these platforms, according to Insider Intelligence.
"This user base has grown over time, with the pandemic serving as an inflection point," said Insider Intelligence senior research analyst Jaime Toplin.
The iPhone maker acquired Canada-based Mobeewave for $100 million so that it could turn the smartphone into a payments processor by using near field communications readers (NCR).
"A competitive implication may be whether [Apple] continues to allow merchants to freely use other payments services on its devices," Wolfe Research analyst Darrin Peller wrote in a Jan. 27 note to clients.
"If [Apple] elects to require merchants to use its own processing service to accept payments, it could come into competition with [Square] merchants that use acceptance hardware that connects with Apple devices. That said, we also suspect that Apple would like to limit friction to users in this case," Peller said.
