KEY POINTS

  • Some estimates are overstating Apple Pay's significance, assuming the feature will account for far more spending volume than seems likely. One estimate in particular has Apple Pay growing to 14% of Apple Services revenue in 2017, or $3.3 billion. 
  • This estimate implies that $2.2 trillion in purchase volume will be transacted through Apple Pay that year (different from Apple's revenue cut). As a point of reference, global payment volume made on Visa's network amounted to $4.76 trillion in 2014. 
  • Apple Pay will launch in just a few markets by the end of 2017, so we assume that the US will account for at least 50% of Apple Pay volume by that year. This means that US Apple Pay transactions would have to account for 1 in 5 US retail dollars spent. This seems unrealistically high.
  • As a point of reference, our in-store mobile payments forecast — which is inclusive of all mobile payment methods, including Apple Pay and CurrentC — has mobile payments reaching just under 7% of total in-store retail volume in 2017. It is one of the most bullish mobile payments estimates in the industry.  

Introduction

Apple Pay, the mobile payment feature available on the iPhone 6 and 6 Plus and on the soon-to-launch Apple Watch, is widely seen as the product that will finally help mobile in-store payments take off. 

We too believe Apple Pay will kickstart consumer usage of mobile payments and are particularly bullish on growth in mobile payments volume now that the feature has launched. However, a recent forecast from Morgan Stanley highlights how some estimates are still too rosy and overstate the impact of Apple Pay.

In a recent research note, Morgan Stanley forecasts Apple Pay will account for about 14% of Apple's global Services revenue by the end of 2017. While Morgan Stanley's note isn't about Apple Pay's success specifically, we can back out from this estimate the implications for the trajectory of Apple Pay payment volume and compare it to our own mobile payments estimates. This should help put expectations for the impact of Apple Pay in context, especially now that we know far more about how adoption is trending among both retailers and consumers.

Before we get started, there are a number of assumptions to keep in mind: 

  • Apple is getting a 15-basis-point payout from card issuers on average and this will be true through 2017. This is the percentage of revenue Apple will [...]