Apple's Fintech Bombshell: How the Tech Giant is Reshaping the Payments Landscape

Dissecting the potential winners and losers as Apple accelerates its fintech ambitions

Apple's ($AAPL) announcements at WWDC yesterday around Apple Pay and Apple Cash have major implications for the highly competitive payments and fintech landscape. In particular, the ability to use Apple Pay on any 3rd party web browser and desktop by scanning a QR code is a game-changer that could more than double Apple Pay's total addressable market. Currently, around 50% of e-commerce transactions occur on desktops.

Apple Pay's Massive Opportunity in Online Checkout

While full rollout and adoption will take time as it requires iOS 18 and enablement by banks and merchants, this positions Apple Pay to take significant share in online checkout.

The market is already fiercely competitive, with over a half dozen major checkout options battling it out. PayPal, while still the market leader with ~50% share of digital wallet checkout, is under pressure. Its share has dropped from 80-90% five years ago as Apple Pay has gained ground to ~20%+ share.

PayPal's Uphill Battle

PayPal ($PYPL) is working to improve its own user experience to stay relevant, but faces risk of commoditization and margin compression as online checkout increasingly becomes about price.

While new products like Fastlane could add incrementally to PayPal's growth, overall we see Apple's moves as a negative for the company's branded checkout button. It likely makes up an outsized portion of PayPal's profits today.

Apple's Tap to Cash Threatens Venmo

Apple's other big reveal, the Tap to Cash feature enabling in-person peer-to-peer payments, doesn't directly threaten PayPal but is a modest negative for its Venmo app. P2P is a key way these apps acquire and engage users.

By making in-person P2P seamless, Apple could spur adoption of Apple Cash and build habits, even if it hasn't gained much traction to date in its six years of existence. This comes as Venmo is already losing market share to Block's Cash App and bank-owned Zelle.

Investment Implications

Looking at the bigger picture, Apple's moves demonstrate the accelerating pace of innovation in payments enabled by the deepening partnerships between tech giants and legacy payment networks. For investors, the news reinforces our views across the fintech and payments sector:

We are bullish on the major payment networks Visa and Mastercard as well as merchant acquirers such as Fidelity National ($FIS), all of which benefit as enablers powering much of this innovation.

We are more cautious on PayPal given rising competitive risks to its highly profitable branded checkout button. Conversely, we are positive on Block ($SQ) which is more diversified and exposed to underserved seller segments and consumer demographics through Cash App.

Final Thoughts

The battle for the future of payments is heating up and Apple just raised the stakes considerably. Investors should buckle up as the competition and innovation in the space is only going to accelerate from here. We'll continue to monitor developments closely to identify the winners and losers as this dynamic market evolves.

Disclaimer: This article is for informational purposes only and does not constitute financial advice or a recommendation to buy, sell, or hold any securities mentioned.

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