Apple Inc.: Awaiting More Details On Apple Pay


Analysts are still waiting for Apple Inc. (NASDAQ:AAPL) to disclose more details about its Apple Pay payments service. Of course in the meantime, they’re speculating about the possibilities, sharing information received from industry sources, and weighing in on Apple Pay’s potential effects on the industry.

What Apple will earn from Pay

In a report dated Sept. 23, 2014, Sterne Agee analysts Thomas McCrohan and Leonard DeProspo said they see Apple Pay as just “another payment tender type” rather than a “tremendous payments disruptor. They also provided some probably details around the financials of the service for Apple.

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They said industry sources have said that bigger banks will pay Apple 15 basis points for credit transactions and half a cent for debit transactions. They said smaller banks will probably pay 25 basis points for credit transactions and 15 basis points for debit transactions.

Why banks will work with Apple

The Sterne Agee team said banks are willing to pay these fees because of how much the average Apple customer spends. They remind investors that while Apple holds only about 25% of the smartphone market, its users make up about 66% of the spending done through smartphones.

They say the large credit card database Apple holds is also a plus for banks.

Other details on Apple Pay

Apple announced that its early partners for Apple Pay include Visa Inc (NYSE:V) and Mastercard Inc (NYSE:MA) and American Express Company (NYSE:AXP). Discover Financial Services (NYSE:DFS) wasn’t on the list of those early partners, although the Sterne Agee team has heard that the company will probably be added by the end of this year.

The analysts also mentioned tokenization fees, which will probably vary by network. They say it looks like all the token provisions Visa approves will carry a 7-cent fee. But when Visa declines a token provision, there’s a 2-cent fee. They added that it looks like MasterCard’s token provisioning fees are a lot higher, at 50 cents.

They believe there could be a merchant token fee of between 2 and 3 cents, although that could go higher by a penny or two. They suggest that the major payment networks could charge merchants these tokenization fees for account setup, maintenance and security.