New details are out on how Apple Pay, Apples (NASDAQ:AAPL) new mobile payment solution debuting with the iPhone 6, could both benefit and potentially take a bite out of the credit card industry.
In a note Tuesday highlighting a meeting with Visa (NYSE:V), Cowen amp; Co. analyst Moshe Katri said Visa believes card issuers are seen as essential partners to Apple Pays success. But it remains to be seen if Apple demands and gets a portion of the merchant acquiring fee.
A merchant acquiring fee is one kind of payment that merchants such as stores owe to their processing services for the work of handling a card transaction. Some of the largest merchant acquirers are arms of JPMorgan Chase (NYSE:JPM), Bank of America (NYSE:BAC) and First Data.
Apple Pay uses a technology called near field communication — or NFC — for contactless payments, such as while standing near a cash register.
Merchants are accelerating investments in NFC-enabled terminals, Katri said in his research note.
Although Apple Pay introduces a frictionless mobile payments solution, he added, the most important metrics to watch are consumer adoption and the ability to convert traditional cash users to card users.
Apple will generate fees from card issuers for including their card on its digital wallet, he added. Furthermore, NFC-enabled transactions at the (point of sale) will be facilitated via the roughly 800 million iTunes accounts which are already pegged to a card.
In its Apple Pay announcement on Sept. 9, Apple noted that hundreds of millions of users can simply add their credit or debit card on file from their iTunes Store account.
Katri says private label cards will likely be included (at a later stage) in Apples digital wallet, which should benefit companies such as Alliance Data Systems (NYSE:ADS), whose services include credit card processing for private-label retailers.
In a report issued last week, Sterne Agee analyst Thomas McCrohan initiated coverage on both Visa and MasterCard (NYSE:MA) with buy ratings, saying the two credit card companies should benefit from growth in cashless transactions worldwide as well as a rise in mobile payment options.
Visa, the No. 1 card company by market cap, is well positioned to benefit from the global secular shift to electronic-based forms of payments, McCrohan added.
Katri said in his note that at the outset, Apple Pay will likely be a neutral event for the networks, while it remains uncertain if merchant acquirers will be impacted.
How Apple Pay Helps Mastercard, Visa One-Up Merchants.