Can Apple’s Fintech Move To Harm Block And Paypal? 

CAN APPLE’S FINTECH MOVE TO HARM BLOCK AND PAYPAL?
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Recently, Apple introduced a new feature “Tap to Pay on iPhone” which permits merchants to accept NFC payments on their iPhones without using additional hardware or payment terminals.

Moreover, merchants can also accept Apple Pay, contactless debit and credit cards, and other digital wallet payments with the service. This will roll out in iPhone XS and newer gadgets in the US later this year. Let’s have a look at whether this movement will harm Block (NYSE: SQ) and PayPal Credits (NASDAQ: PYPL)?

DECODING APPLE’S GAME PLAN:

Since the day of Apple Pay, more than 90% of US retailers have adopted it. Apple Pay doesn’t charge its merchants any fees, unlike its competitors like Block’s Square, PayPal, etc. Rather, it allows using a stored credit or debit card on iPhones, iPads, and Macs with Touch ID, Face ID, and NFC security features.

Pay Cash was also launched in 2017. This service competes with Block’s Cash App and PayPal’s Venmo and is also free of cost. 

Also Read: Louis Vuitton Will Hike Price For Its Products This Week Due To Rising Costs

Digital payments on Apple represent a technique or method to lock in users instead of generating significant revenue. It’s just one brick in its prisoner ecosystem, which also includes its App Store, Apple Music, Apple TV+, Apple Fitness+, and other subscription-based services. One can say that Tap to Pay on iPhone acts as a natural extension of this strategy. 

On the other hand, Google Pay also offers peer-to-peer and in-store payments, but its merchants have to install third-party NFC payment terminals.

WHAT IS ‘TAP TO PAY

Apple’s latest move could harm Block and PayPal, but we must know that the business models of each one are different. 

Apple Pay and Google Pay are simplified credit and debit card transactions for merchants as they don’t pay any fees, but they still have to pay a “card present” swipe fee at physical stores that can cost up to 3.5% depending on the network. Cards.

Related: According to Apple, iPhones Will Process Credit Cards Without Any Additional Hardware

Unlike Apple’s latest feature, Block’s Square and PayPal bear these swipe fees and instead charge merchants a flat transaction-based fee. These fees, which are reduced by the scale of Square and PayPal’s own payment networks, can be a cheaper option than card swipe fees for some businesses. Square and PayPal also sell additional products – such as payroll tools, analytics services, and loans – to offset these costs and increase their revenue per merchant.

Apple’s latest decision does not harm these business models. In fact, Block’s Square Seller and Cash App services are working with Apple Pay, while PayPal combines Apple Pay into its Braintree back-end payment platform. Apple is already planning to merge ‘Tap to Pay’ with other third-party iOS payment apps – starting with Stripe – so that Block and PayPal can also add the new option to their own payment ecosystems in the future.

Apple’s ‘Tap to Pay’ may terminate the need for Square’s dongles and payment terminals, but this hardware loss produced less than 1% of its revenue in the first nine months of 2021. PayPal also sells terminals point-of-sale (POS) through its subsidiary Zettle, but it does not generate significant revenue from these products.

IS APPLE REALLY A THREAT TO BLOCK AND PAYPAL?

Apple’s new feature initially seemed a threat to Block and PayPal, but it will only impact their tiny hardware segments.

As Apple Pay targets a completely different segment of the market, it won’t affect Block and PayPal’s core businesses. It won’t turn Apple Pay Cash into a major danger to Block’s Cash App or PayPal’s Venmo, which together serve at least 150 million active customers.

Unlike Block and Paypal, Apple won’t expand its Pay ecosystem with value-added data collection as its privacy-focused platform doesn’t identify the buyer or product.

Investors should definitely consider Apple Pay and Google Pay as they are secure, smartphone-based extensions of physical cards. On the other hand, Block and PayPal are intermediaries leveraging their scale to offer more favorable payment processing rates while selling additional value-added services.

Though these two markets may overlay in some areas like payment terminals, Apple and Google’s Fintech initiatives to create an ecosystem are incomparable with digital payment platforms like Block and PayPal obsolete anytime soon.

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