Data Dive, Moving In And Moving On Edition: Apple, Venmo, Google And Visa

The official end of summer is now less than two weeks away, but payments and commerce got an early jump on getting back to the fall work schedule. There is lots of motion in the markets, with Apple officially moving into the world of being a card issuer (with mixed reviews), Venmo making moves on the bank account and Google Pay breaking up with Visa Checkout as a payments button.

Apple’s Expensive Card

The Apple Card rollout began last week through Goldman, and the analysts are already worried that the card and its features will be a bit of a dud with consumers, at least at first, which will lead to some rather underwhelming results for Apple’s tech and bank backers. Don’t say we didn’t warn you.

Analysts at  Nomura believe the card may bring more in the way of losses at first – and though there could be potential for disruption down the line, it will likely be far, far down the line.

“The card may take years to reach our threshold for materiality, or above $1 billion in operating profit,” noted the report. “Goldman, for its part, may see impact from loan losses should the economy falter. As a new entrant, Goldman Sachs does not have the historical data or experience that lenders obtain when underwriting through a credit cycle.”

The card, with its lower interest rates and no-fee structure, is estimated to be an expensive card to issue, with acquisition costs in the range of $350 per customer.

The report goes on to note that while many new industry players enter the market announcing they have a way to build “a better mousetrap for underwriting consumer credit,” most discover that it is incredibly difficult to actually live up to that promise, particularly during a down credit cycle. The effects could be particularly tough for Goldman, the report added, since it is underwriting at least some sub-prime customers for the new Apple Card offering, which will mean higher loss and delinquency rates.

The report was not wholly negative, though: Analysts also noted the Apple Card’s “elegance should entice some consumers to make it their payment vehicle of choice.”

But mostly, the report focused on the fact that Apple has created a costly card, with no obvious road to make a big splash in a crowded credit card market. It did note the possibility that the card is best understood as part of Apple’s broader ecosystem play around financial services, and that more products and services may be en route.

“Ultimately, however, we do not believe the Apple Card’s full roster of features and perks compare favorably with rival credit cards, at least for now. We believe the Apple Card is best understood as yet another tool in Apple’s digital wallet toolkit, alongside the current services Apple Wallet, Apple Pay and Apple Cash. We suspect that Apple is not finished with its slate of financial services; adding debit could be one such avenue,” the analysts wrote.

Venmo Steps up Its Game Against Zelle

Venmo added its newest instant money feature this week: instant transfer to a bank account, according to a blog post.

“Having money in your Venmo account is an awesome feeling – it makes paying friends and family that much easier,” the company said. “We also know that sometimes you need other ways to access that money. This week, we’re excited to announce another way for you to instantly access your funds!”

Since last year, Venmo customers have been able to make an instant transfer to a checking account via a debit card for a 1 percent fee (minimum 25 cents, maximum $100). The new service drops the debit card requirement but keeps the 1 percent fee. Venmo is using the JPMorgan connection to the TCH RTP rails to enable the instant account-to-account transfer option.

“The new transfer option begins rolling out today and will be widely available in the coming weeks, so make sure to update your Venmo app!” the company said.

PayPal-owned Venmo hit 40 million active users in Q1 of 2019.

“Venmo continues its significant momentum,” CEO Daniel Schulman said on a call with analysts. “As user growth continues to accelerate, merchants are increasingly turning to Venmo as a way to attract a valuable and engaged consumer base.”

But Venmo faces active and aggressive competition in the form of bank-backed P2P payments service Zelle.

The growth of Zelle P2P payments increased at a slightly faster rate than Venmo in the latest financial reporting period: While year-over-year payment values increased by 56 percent, transaction volume increased by 71 percent, just barely beating the PayPal figure. Early Warning, the network operator of Zelle, also said that in the second quarter of 2019, “$44 billion was sent through the Zelle network on 171 million transactions.”

“More than 64 percent of U.S. demand deposit accounts will have access to Zelle through the 480 financial institutions contracted to join the Zelle Network,” said Al Ko, CEO at Early Warning. “We continue to see double-digit increases in new customer wins each month, demonstrating continued demand for Zelle from national and regional banks and credit unions.”

Visa Checkout Gets Ready to Check Out

According to reports out this week, Visa is moving ever closer to pulling the plug on its Visa Checkout service sometime next year. First introduced in 2013 alongside the rise of EMV, the service will reportedly be shuttered in favor of a new EMV SRC-based service.

As a sign that the process is moving forward, Google Pay this week pulled the plug on its support for Visa Checkout, removing the services from the “Supported accounts & services” section of its support page, leaving only PayPal. Google Pay has supported Visa Checkout since 2017.

When asked about the change, Google said Visa was in the process of terminating the service to migrate to the new one.

Visa has said the replacement service will start appearing to Checkout customers within the next few months in a handful of markets. The full transition to what’s next, however, will likely not be completed until 2020.

Google did note that bank-issued Visa cards will continue to work within the Google Pay service. Only the direct integration between Google Pay and Visa Checkout is shutting down.

Whether Visa Checkout’s replacement will eventually be supported by Google Pay remains to be seen.

In fact, “it remains to be seen” is the coda to many of this week’s stories. Will the Apple Card sizzle as Apple hopes, or fizzle as analysts fear? Who will come out ahead in the rapidly intensifying digital P2P foot race between Zelle and Venmo? And what will Visa’s next move on digital payments look like?

It remains to be seen – but we’ll be here to tell you all about it when we get our first glances.

Have a good week.