Yet another billion dollar business

I tried to assess the opportunity of Apple Pay but found it to be mostly dependent on how quickly card payments will overtake cash. It seems that as payments move to a digital format they will move to a mobile device. The hurdle isn’t going from a card to a phone but from cash to card.

Data published in The Growth and Diffusion of Credit Cards in Society  shows that between 1970 and 2001 households with at least one credit card in the US grew from 17% to 70%. More recent data shows 82% of US consumers have at least one credit card and 77% have a debit card.

The Total Addressable Market for Apple Pay then is dependent on how quickly this pattern repeats over the markets where iOS devices are in widespread use. Once cards are in use they are used with higher frequency and quickly overtake cash for the user.

The only assumption that needs to be made is that the device then replaces the plastic card. This seems a safe assumption as the benefits of the device as payment authenticator are high and the costs are negligible given a penetrated market.

The following graph shows an extrapolation of transaction volumes where Visa and MasterCard and Amex are showing moderating growth with UnionPay showing 20% constant growth through 2019.[1]

Screen Shot 2014-11-28 at 12.58.21 PM

Two more assumptions are needed: the share of transaction value captured by Apple Pay and the Apple Pay fee. I used 15 basis points ($15/$10000) as the assumed Apple fee and a share schedule as follows:

  • 2015: 0.5%
  • 2016: 1%
  • 2017: 1.5%
  • 2018: 2%
  • 2019: 3%

These assumptions result in a cumulative revenue of over $1 billion by 2018 and a yearly run rate of $1 billion in revenue by 2020.

Although this is not a huge amount relative to Apple’s overall revenues[2], it’s important to note that these revenues are likely to go directly to earnings[3] as there are negligible costs associated with the transactions that Apple needs to bear.

These assumptions make the statement that Apple Pay can become “A Billion Dollar Business” plausible by 2020. Perhaps sooner.


  1. Supporting these assumptions is a forecast from Nilsen showing total number of cards in circulation by issuer and a forecast of total transactions Screen Shot 2014-11-28 at 1.40.01 PM []
  2. No more than half of one percent of 2015 revenues []
  3. About 2% of 2015 earnings []
  • drone

    This assumes that Apple is not charging more (25 bps) for in-app purchases.
    Not only Credit Card companies charge higher fees (CNP) for them.
    Apple has to use ApplePay servers to re-encrypt Tokens using Vendor Keys
    to do the processing.
    So Apple is the middle man in this case unlike retail POS scenario.

    Even retailers essentially want to bypass POS terminals and go straight to the cloud.

  • Will

    Apple is so evil

    • Padova44

      You never ask questions when God’s on your side.

  • Sacto_Joe

    The key tech here is TouchID. Apple Pay is a logical extension of TouchID. Apple should strongly consider licensing TouchID and Apple Pay, IMHO.

    • NostraThomas

      Mr. Joe, you know Apple pretty well. They like to leverage their tech to sell hardware. Why do you think in this case they would license TouchID?

      • Sacto_Joe

        Frankly, I doubt that they will consider it. Steve Jobs definitely wouldn’t. But that doesn’t mean they shouldn’t consider it. As a differentiator of Apple products, it’s valuable. But it will have vastly more impact as a licensed product, on a far faster timeline. Making it ubiquitous as soon as possible will be a positive for society, and licensing it means they can still monetize it.

      • license

        Do you think they should license iOS as well? Similar set of arguments.

      • Sacto_Joe

        There’s a huge difference between a complete OS and a specific piece of tech.

      • license

        A difference of degree, but similar arguments apply. You’ll also gain “impact”, “faster timelines”, “ubiquity”, etc by licensing an operating system. I don’t know why anyone would want those at the cost of a differentiated product, though.

      • Sacto_Joe

        A huge difference in degree, and so “similar arguments” don’t apply. You’ll have to show me how they do if you see that. Note that I am, and have been, completely against Apple licensing their OS’s – including when they did.

      • license

        What do you think the benefit is here? Trade away a key hardware differentiation, which are difficult to come by and they’ve worked hard to obtain, for a few “basis points” on transactions on other platforms. They also gain things that they’ve seemingly never been particularly interested in or prioritised, like “ubiquity”. Giving away Touch ID would be a great indicator to me that they don’t understand their business or success, so I’m pleased that it won’t happen.

      • Sacto_Joe

        I’ve already spoken of the benefit. I think this conversation is at an end.

      • NostraThomas

        Good points. I wonder if Apple could sell the TouchID as a modular component, complete with the “secure enclave”, for building into other handsets. That would be interesting. Not really licensing the tech for others to build– potentially with less security–, but as a complete kit.

      • Sacto_Joe

        You have it; TouchID as a turnkey solution – no pun intended.

      • Abhi Beckert

        Apple loves to canibalise their own products but there is no way they will let Pay canibalise iPhone.

        By your numbers Pay could be a 10 billion dollar business if they licensed Touch ID.

        That is not enough money to justify harming their core hardware business.

      • Sacto_Joe

        You’ll have to explain to me how licensing TouchID and Apple Pay would “cannibalize iPhone”. I don’t see it.

        And by my numbers licensing Apple Pay could be a $20B business – and that’s just the beginning.

      • Abhi Beckert

        Touch ID is something iOS devices have that nobody else has. It’s one of their only competitive edges in hardware over their competition. Therefore letting competitors license it would cost sales.

        I’m pretty sure your math is wrong re: $20B. If it’s a 1B on 2% then it would be 10B with 20%. And that doesn’t even take into account the fact Apple Pay on a Samsung device would have to send some of the revenue to Samsung, so it wouldn’t be as profitable as Apple Pay on an iOS device. But whatever, it’s very hard to know how profitable Apple Pay will be.

        I think Apple cares more about their iOS hardware business, which is very profitable, than they do about Apple Pay which might some day be profitable.

      • Sacto_Joe

        You’re right about the math – my bad. And it’s a good point that Apple would have to share revenue if the device were licensed.

      • Sacto_Joe

        “Touch ID is something iOS devices have that nobody else has. It’s one of their only competitive edges in hardware over their competition. Therefore letting competitors license it would cost sales.”

        I’d say that a failure to self-cannibalize sets one up to being cannibalized by others. Indeed, you yourself suggest that’s a real possibility when you speak of Microsoft below.

        It’s always better to self-cannibalize than to be cannibalized by others.

      • Abhi Beckert

        Also if anyone is going to license a phone payment system to android manufacturers, it will be Microsoft.

        Note that Microsoft produced a white-paper detailing exactly how Apple Pay could be implemented long before Apple announced Apple Pay. Most of the technology was implemented by ARM and Visa/Mastercard/UnionPay. Apple simply filled in the blanks, which anybody could do.

      • Sacto_Joe

        I have little doubt that competing pay systems will appear. All the more reason to license the system that Apple would prefer to be the standard.

        A good example of where Apple has failed to do this is FaceTime, which is being relegated to a backwater solution specific to Apple owners. That’s fine until you have to deal with someone who doesn’t own an Apple device. If they’d made a legitimate attempt to go cross-platform with that tech, they’d be competitive today. It’s not good that they aren’t.

      • Tatil_S

        I’ve heard a patent tussle with a troll has prevented Apple from opening it up to non-Apple devices and apps.

        Nevertheless, it gives people a reason to buy an iPad or iPhone for their parents as gifts, so Apple may have gained financially by preventing it from becoming cross platform. The numbers may not be large, but it is not like Skype or anybody else in video calling “business” makes money, so I don’t see how Apple would earn any money by publishing FaceTime APIs or releasing FaceTime apps that run on other operating systems.

    • Sacto_Joe

      There’s another issue with holding too tightly onto tech; anti-trust. Look at what’s happened with iTunes.

  • I wonder if crypto currency will skew the numbers. Especially when looking ahead 6 years.

  • Jared Porter

    I think Google and Android OEMs have to secretly be terrified of the inherent benefits of Apple Pay.

    Apple’s ace in the hole is its proprietary patents and proven favorable experience in the field from millions of users already using fingerprint authentications, with literally trillions of flawless executions by iPhone 5s and 6 users (every log in). This technology, acquired through Apple’s purchase of Authentek, is far more reliable and fluid compared to any Android OEM’s attempts (e.g. Galaxy S5) so far.

    Safety, privacy, and ease-of-use in the payments arena will soon pervade our daily purchasing habits and security requirements.

    Apple already enjoys amazing free publicity attendant to comparing its NFC (secure enclave) regimen to other vendors (like D.O.A. Current C). The public tussle among all the electronics payments vendors will shine a favorable light on ApplePay and give it an avalanche of good publicity if it avoids ever being compromised. In the near future, as huge national vendors (Best Buy, Safeway) start to fall into Apple’s camp, (especially as they seamlessly opt in their loyalty cards), the drumbeat of free publicity that results will polish the Apple brand appreciably.

    Further promoting Apple Pay as an eco-system boosting, must-have feature will be online ordering (security and ease of use plus no extra steps in adding shipping addresses or card numbers).

    Future transit/stadium turnstile use, boarding passes, and China’s Union Pay will also spread the potential.

    The “mandate” of POS NFC readers in the fall of 2015 will also cause a massive national (free-publicity) discussion about the fingerprint/proprietary security benefits of Apple Pay.

    Licensing Apple Pay to Android after a couple of years? Very interesting idea!

    • art hackett


    • absolut

      the amount of free publicity Apple gets always amazes me.
      their marketing team is doing a superb job, especially when compared to the disaster that their competitors(with multi billion budgets) are calling PR.
      Similar example would be headphones restrictions on NFL/NBA players – with huge public positive “backlash” to Beats

      • Sam

        Here is the problem with your analysis. You seem to think that a marketing team sells a product. It can if you throw an enormous amount of cash into it.

        It’s actually the product development and design team that create a “good” product.

        Marketing is important but if a product is dog poop, no amount of marketing can help.

      • absolut

        some ppl say Beats headphones are very mediocre tech-wise – but they DO sell for premium prices and in big quantities. why? much more than Bose – the company built by sound engineers for sound engineers, the best tech-wise by far.
        the problem with your analysis – you think if you build a great product – it will sell by itself. true but it will leave HUGE amount of money on the table.
        When i say “marketing” i don’t mean ads necessarily – that’s too cheap-looking and corny(think samsung/msft) – i mean making a private AppleWatch show in Paris for the biggest names in fashion(and having people queue miles-long). I mean getting the biggest names in showbizz/sports to show their LOVE for beats.
        and “just throwing cash on it” – that’s Samsung’s way and look where it is now.

      • Sam

        I agree with your post.

        But I think neither Bose nor Beats have great sounding headphones or speakers.

      • Tony L’Ombroso

        To reinforce your point, that you write about Bose being a “company built by sound engineers for sound engineers, the best tech-wise by far”, it’s waaay more because of their marketing, rather than the actual merits of their products.

      • What measurements are you using to make this conclusion? In other words, how do you measure the merit of the product vs. the quantity of marketing?

    • Abhi Beckert

      I’m not aware of anything Apple is doing that Google couldn’t do.

      Secure Enclave is not Apple’s technology. It’s part of the ARM specification. Android chip manufacturers haven’t implemented it yot but they will.

      And most of Apple Pay was invented by Visa/MasterCard/UnionPay. So Android can implement all of that without any patent issues with Apple.

      The only area Apple owns patents would be via Authentec/TouchID. Android would have to use something else to authenticate the user just as Apple has done to get Apple Pay onto the Watch, which has no Touch ID.

      • Jared Porter

        Good points. However I am assuming Authentec’s/TouchID patents may not be that easy to work around. Google/Android has already had more than one year to counter Apple’s Touch ID, and so far the only counter-measure I am aware of is Galaxy S5’s fingerprint scanner which I understand requires one to swipe the finger straight down, and is reportedly somewhat unreliable?

        Also Apple has a lead position in employing sapphire crystal at the fingerprint lens point.

        Additionally, I believe secure enclave requires 64-bit technology which may be very hard for low-cost Google/Android phones to implement at scale?

        At any rate, Apple has quite a head start and I haven’t heard many complaints about FingerprintID after presumably trillions of phone unlocks since the iPhone 5S.

      • Tatil_S

        I believe HTC has a flagship phone with fingerprint scanner as well. The location of the scanner is not as user friendly and I heard it is not as reliable either, but that is par for the course in Android world.

      • Davel

        I agree.

        I don’t think anyone else has a touch technology as smooth as authentic.

        Apple took it off the market.

      • Kizedek

        Whether or not Google could implement some kind of secure enclave within Android, it’s another question whether Google would implement it.

        Their business model is such that they don’t want privacy of transaction; they want to know what you bought, where, when and how much you paid.

      • Sam

        While I don’t disagree with you, how does Google Wallet or a future version of it benefit the OEMs? Eventually they all have to include it, while Google reaps the rewards of money from the transaction and data collection. What does LG, Samsung, etc get out of the transactions?

        They are still relegated to being a HP, Dell, Lenovo in the MS world.

        Let’s not forget the wireless networks that want a cut of Google Wallet, or are willing to ban it?

      • revenueshare

        Google has revenue sharing agreements in other similar cases.

  • absolut

    i think TouchID & SecureEnclave positioning as a “payment system” is just another brilliant stratagem from Tim Cook – Apple is tired of copy cats and doesn’t want to give them any heads-up time. That’s why they released it in stages – TouchID initially was merely a hassle-remover to avoid punching pincode. Gradually it becomes apparent it had additional, pre-planned uses (e.g. payments)
    As was suggested before, payments are just an initial/obvious sub-market of the much greater “authentication” market – just some obvious examples:
    * IBM + TouchID: Employee ID badges – room/equipment access, worksite security
    * HealthKit + TouchID: medical record management, after personal financial data, this is obviously most vulnerable information, which begs for greater security. This is the lowest hanging fruit in the Healthcare, currently a du-opoly and Apple is apparently in talks with one of the incumbents(EMS).

    so, the [very] conservative 1 billion/year, even with 99% margins is hardly an end in itself – it’s a topping on the cake of yet another “leg in N-legged stool”/tentpole/killer feature, which in turn will enable other multi-tens-of-billions cash cows

  • beidaren

    what about the broader authentication business outside credit card payment? Apple Pay’s core security feature + Apple ID can be extended to other business requiring personal authentication. examples: building security systems, health insurance cards, mass transit systems, auto insurance, etc. Apple could license the technology and collect fees..

    • Sacto_Joe


    • Abhi Beckert

      Apple already provides this for free in the iOS SDK. I can’t see them starting to charge for it.

      My bank is using it for internet banking within their iOS app. 1Password uses it to secure website login passwords in their browser extension.

      It could easily be adapted to building security and mass transit or anything else, just have to use bluetooth instead of NFC. Bluetooth is superior anyway, Apple Pay only uses NFC because it’s already rolled out to merchants globally.

  • deemery

    Debit Cards were widely used in Canada when we lived there in the mid ’90s. It might be interesting to look at how Canadian card usage vs checks vs cash have evolved over the last 20 years.

    • Space Gorilla

      I live in Canada, it’s pretty much all chip+PIN debit and credit cards. Consumers paying with cash or cheque is an oddity.

  • upfan

    Union Pay. Wow, never heard of it till now, but looks like the future belongs to Union Pay. Long live Union Pay. Who owns it? Chinese govt?

    • sizuco

      State owned. It has a monopoly on the Chinese market. But hardly accepted outside China. China has a very large debit card penetration.

      • Davel

        I see it accepted at Citibank in NYC