PayPal Could See Growth Avenue with Apple Pay's NFC Integration, Says Morgan Stanley Analysts
In a note on Tuesday, Morgan Stanley analysts discussed how the integration of Apple Pay's NFC chip technology could open up new growth opportunities for PayPal (NASDAQ: PYPL). While the immediate financial impact may be limited, the strategic benefits are expected to be significant, especially in enhancing PayPal's mobile checkout experience.
Despite the potential minimal gross profit contribution from NFC transactions powered by Apple, the integration is projected to enhance PayPal's online presence. This could result in increased awareness and habituation among users, particularly in mobile transactions.
The overlap between PayPal and Apple users presents a sizable market for PayPal to target. According to Morgan Stanley's survey work, 38% of PayPal users are iPhone users, and 24% of consumers have both PayPal and an iPhone. This positions PayPal well to leverage Apple's NFC chip for in-store payments.
However, it is important to note that PayPal's role in these transactions is likely to be as a replacement for Apple Pay, rather than as a merchant processor. This could result in lower fees for PayPal, around ten basis points compared to the 3.4% it earns on Branded transactions.
Looking ahead, the long-term potential for PayPal lies in reducing friction in online mobile checkout, especially if it can integrate Apple's "double-click" side button feature into its transactions. This integration could significantly enhance PayPal's competitive positioning in the mobile payments space.
In conclusion, the integration of Apple Pay's NFC chip technology could offer PayPal a new avenue for growth and strengthen its position in the mobile payments market. By targeting the overlap between PayPal and Apple users, PayPal has the opportunity to improve its online presence and drive higher usage over time. While there may be challenges in terms of fees, the strategic benefits of this integration could have a positive impact on PayPal's long-term prospects.
Analysis:
- PayPal could benefit from Apple Pay's NFC integration in terms of growth opportunities and improved mobile checkout experience.
- The overlap between PayPal and Apple users presents a sizable market for PayPal to target.
- Lower fees for PayPal in these transactions could impact its earnings, but the strategic benefits outweigh the challenges.
- The long-term potential lies in reducing friction in online mobile checkout and enhancing competitive positioning in the mobile payments space.