Apple Pay

Tim Cook: 2015 The Year Of Apple Pay

“We are in the first inning.”

“2015 will be the year of Apple Pay.”

Those two talking bits about sum up what Apple CEO Tim Cook had to say about the progress of the mobile payments app and how the service will evolve in attracting new merchants, issuers, and consumers in the year to come. During the company’s first-quarter earnings call yesterday (Jan. 27), Cook gave analysts a peek into Apple Pay’s success, and in true Apple fashion he alluded to the product’s growth without providing any overly specific payment volume figures. But as he rattled off the growing number of Apple Pay-accepting merchants and issuers, Cook gave some insight into some key figures about what sort of mark Apple Pay is making on payments.

“As of today, about 750 banks and credit unions have signed on to bring on their customers, and in just three months after launch, Apple Pay makes up two out of three dollars spent on purchases using contactless payments across the three major U.S. card networks,” Cook said.  “In merchants who already accept Apple Pay, the rates are even higher. Panera Bread tells us Apple Pay represents nearly 80 percent of their mobile payment transactions. And since the launch of Apple Pay, Whole Foods Markets has seen the use of Apple Pay increase by more than 400 percent.

Citing the example of USA Technologies, which announced yesterday that they’d be accepting Apple Pay at 200,000 of its locations, Cook emphasized “everyday payments are happening.” Cook indicated that POS providers are seeing high demand for merchants to accept Apple Pay, particularly through its partners and customers.

When asked by an analyst about the potential for mobile payments in terms of Apple Pay and customers making in-app payments, Cook discussed how the potential of mobile payments varies depending on region and demographics.

“Both the contactless app and the in-app payment are important. I think they are both huge opportunities. I think they’ll play out differently in different geographic regions as to which one is larger than the other and likely the mix of those things will change over time as more and more commerce flows across apps,” said Cook, who also talked about how Apple Pay might evolve.

Evolving for Apple, who already has a dominating presence in the U.S., means going global and getting Apple Pay outside of the U.S. While there’s still work to do at home — particularly with merchant adoption and convincing consumers to use Apple Pay — Cook indicated there’s evidence Apple Pay can succeed on an international level.

“I think we are in the first inning on [Apple Pay], and we have’t even completed the first inning yet. There’s tons of things on our roadmap for adding functionality to it. We’re obviously just in the U.S. right now so there’s tons of countries to go to. There’s not a day that goes by that I don’t get notes from many businesses outside the U.S. wanting Apple Pay — and banks and merchants. And of course we still have a lot of merchants in the U.S.,” Cook said. “But I have to tell you, that given that we launched in October [2014], I am actually unbelievably shocked — positively shocked — at how many merchants were able to implement Apple Pay in the heart of their holiday season. But we were able to get a lot of different merchants and I give them a lot of credit for that. I think we’re just on the front end and I think that this is the year of Apple Pay.”

Cook hinted that Apple, and the launch of Apple Pay, was designed to create the virtuous circle: The launch of Apple Pay would create more iPhone 6 customers and more iPhone 6 users would be driven by the desire to use services like Apple Pay. Did that strategy pay off for Apple? It’s hard to tell. But the massive number of iPhones sold last quarter, which include holiday sales, indicate that a lot more consumers have the power of Apple Pay in their hands. We just don’t quite know how many of them are actually using the app.

If the number of iPhones Apple sold in its first quarter equaled the population of a city, the figure would be roughly eight-times larger than New York City. Hint: that’s 74.5 million — the number of iPhones Apple sold in Q1. But because Apple doesn’t release its precise inventory figures, it’s impossible for those outside of Apple’s ranks to know how many of those were iPhone 6 or iPhone 6 Plus. The surge of iPhones sold in Q1 also helped Apple hit another milestone: the sale of its billionth device. That helped Apple hit its all-time record revenue of $74.6 billion, a 30-percent increase from the year prior. Profit hit $18 billion for the quarter.

What also helped fuel Apple’s iPhone sales growth was Apple’s emerging presence in China. First-quarter earnings in revenue from “greater China” hit $16.1 billion, which reflects a 70- percent growth from the year prior. Apple consistently trailed Samsung in the Chinese market, but research firm Canalys estimates that Apple is now the top smartphone maker in China. In October of 2014, the same month Apple Pay launched, Apple was the No. 6 smartphone maker behind its Asian counterparts. While the U.S. still makes up a majority of Apple’s retail sales, Cook indicated that the company’s growing presence in China will help show a shifting global market for the company.

Cook said the results of inland China Apple customers shows iPhone sales are up 100 percent, year over year. Additionally, he said, China is going to be a major market for Apple, the iPhone and potentially Apple Pay in 2015. While he didn’t point to China specifically for Apple Pay, its growing share of iPhone users show Apple may work to get into the heavily regulated payments market in China. Saying Apple is a “big believer in China,” Cook said Apple will soon his 20 stores in China and that will double by mid-2016. Apple’s e-commerce presence is also growing and available in over 350 cities in the country.

And Cook certainly wasn’t shy in sharing his thoughts on the iPhone market share, indicating that Brazil and China are the two emerging markets Apple has focused on recently. Cook also got a few jabs in at the Android market, citing that the latest quarter was the highest Android-to-Apple switchover rate than any of the three previous phone launches.

“We believe that [the iPhone] is the best smartphone in the world. Our customers are telling us that, the market is telling us that. We’re doing well in every virtually every corner of the world and so we’re very bullish that it does have legs.”

What Cook also said will have legs in 2015 is Apple’s launch of the Apple Watch in April, which was delayed multiple times, including its most recent release projection of March. But Cook defended the product rollout of the smartwatch — which will also be Apple Pay compatible — saying that Apple always said it would come out in early 2015, which he said considers to be the first four months of the year.

But with the earnings figures, iPhone sales and overall growth all beating analysts’ expectations, Cook and his crew at Apple might have just bought themselves some extra time from analysts wondering why Apple hasn’t rolled out its next product. And by this time next year, we’ll be able to answer the one question payments pundits all want to know: Will 2015 be the year of Apple Pay? Tim Cook already thinks so, but do consumers?

Apple and Apple Pay in 2014

Apple’s fourth quarter earnings came in just hours after Apple Pay launched on Oct. 20, and the quarter brought in record-breaking revenue, sales and profit. Strong sales of iPhone6 and 6 Plus, which had huge backlogs in Q4, brought home a strong year for Apple. Apple’s Q4 was its strongest revenue in seven quarters, reporting $42.1 billion in revenue and a net profit of $8.5 billion. And that capped off a strong 2014 for the tech company.

“Over the last four quarters, our products and services have generated $183 billion in revenues, an increase of $12 billion over last year. We sold 243 million iOS devices and 19 million Macs, both all time highs,” said Cook in the Q4 earnings call. “Our revenue from iTunes software and services reached $18 million, which was more than the annual sales of two thirds of the companies in the Fortune 500 and we generated $6.45 in earnings per share, which is 14 percent higher than last year and also set a new record.”

Analysts wanted to know about the Apple Watch during Q4 but Cook was candid in telling analysts he wasn’t going to give up details on the numbers. He also didn’t give projections for iPhone 6 or 6 Plus sales, but did stress during the call that Apple can’t keep up with the high customer demand of its products.

“To be straight, I am not very anxious in reporting a lot of numbers on Apple Watch and giving a lot of detail on it because our competitors are looking for it and so aggregating it is helpful from that point of view as well,” Cook said.

Apple’s Q4 talks were much more payments focused than the company’s third quarter, which strangely enough didn’t have any questions from analysts about Apple’s mobile payments plan. That was in late July, and by Sept. 9, talk of Apple Pay was all the rage in the payments industry. Everyone who had anything with tech, commerce, payments and mobile had something to say about Apple Pay, and the conversations have kept flourishing since. And here at PYMNTS we’ve been tracking its every step with our Apple Pay Ecosystem Tracker. But Apple Pay only made up the last quarter of the year for the company. So what else happened for Apple in 2014 in terms of earnings?

In Q2, Apple generated a March quarter record of $45.6 billion in revenue, up 4.6 percent from $43.6 billion during the same period ended March 31 last year. Net income rose 7.4 percent, to $10.2 billion from $9.5 billion. The share of revenue from hardware/devices (iPhone, iPad, iMac and iPod) during the quarter was 86.9 percent, down from 87.4 percent a year earlier. iPhone units sold during the quarter totaled 43.7 million (compared with 37.7 million expected by analysts), also a March record and up 16.8 percent from $37.4 million. iPhone sales revenue was up 13.5 percent, to $26.06 billion from $22.96 billion. Some 16.35 million iPad units were sold during the quarter, short of analysts’ estimates of 19.7 million units but at the high end of company forecasts.

Cook remained determined in April to keep the company’s future plans close to the vest. When asked about new products — like the iPhone 6 or Apple Pay — no specific details were ever given. It would be nearly six months before details would emerge.

For Q1, the quarter that ended Dec. 28, 2013, Apple posted an all-time quarterly record of 51 million iPhones. Apple also sold 26 million iPads during the quarter, also an all-time quarterly record, compared to 22.9 million in Q1 of 2013. Overall, Apple posted a revenue of $57.6 billion and a net profit of $13.1 billion. Still, just like first and second quarter, Apple’s earnings focus was all given to iPhone and iPad sales; the interest in investors has changed quite a bit in a year, as most are wondering how Apple Pay has influenced that sale of iPhones. But since that’s a speculative figure, Apple will have to keep relying on its iPhone sales figures as indication if there’s consumer interest in at least owning the device that gave new life to the mobile payments industry. The next step, as it’s been since last September, is convincing those consumers to use that smartphone to make mobile payments.


Latest Insights:

Our data and analytics team has developed a number of creative methodologies and frameworks that measure and benchmark the innovation that’s reshaping the payments and commerce ecosystem. In the November 2019 AML/KYC Report, Zillow’s Justin Farris tells PYMNTS how the platform incorporates stringent authentication without making the onboarding and buying experiences too complex.

Click to comment