Hi everyone,
I’m excited to break down fintech M&A activity from the last quarter in Q2 Signals, but before I do that, I wanted to share quick thoughts on one specific M&A story: Apple’s recently-announced acquisition of Mobeewave, a POS provider.
I suspected this might happen for a while and shared my thoughts on why Apple may want to own a POS here. I think this also has interesting implications for mobile payments, and I’ve detailed six of them below. Let me caveat heavily: this is all public information (and my own speculation); I don’t have any details that aren’t available to everyone else, so I would take these guesses with a grain of salt.
Possible implications for mobile payments:
Apple will want to continue owning NFC. The company is famously possessive over NFC access: Apple Pay is the only app that can use the iPhone's NFC for payments. It is fighting a legal battle in Germany right now to keep it that way. A user could still use Paypal (or WeChat Pay) to pay via QR code, but if Apple Pay will work with QRs as well in iOS 14, why have two apps when you could use one? Owning NFC payments means that Apple could take fees on retail transactions and could get a window into transaction data to enable it to build more tailored financial products. (PFM, installment loans, bill split, etc.)
This will pit Apple against Paypal. Paypal has notbeenshy about making its in-store ambitions known. They are worried about getting squeezed on all sides: by Click To Pay for online purchases, by Cash App for peer-to-peer, and now by Apple for in-store. That is why Paypal is taking control of its fate with products like the Venmo debit card and upcoming Venmo credit card. The iPhone sits upstream of Paypal (you need to use a phone to access the Paypal app; you don't need to use Paypal to access your iPhone wallet), so even for people with Paypal, Apple always has the opportunity to disintermediate them in mobile payments. Square is a little more insulated, given it makes money off subscriptions, services, and hardware, but 65% of its revenue still comes from transaction fees, so I assume they are worried as well.
Mobile payments will become more ubiquitous in the US. As Square, Paypal, and Apple compete to enable mobile payments, this will become more standard user and merchant behavior. However, the elephant in the room in the US is still credit cards. Because credit cards are so convenient for consumers, it may take a long time to win sizable market share from credit card transactions in the US.
Mobile payments will become commoditized and value-add features will be core differentiators. As more companies rush to offer mobile payments solutions, the payment functionality itself will become undifferentiated and they will have to add on additional features to win over users from competitors. That is why Venmo partnered with Dosh to add cash-back rewards to its debit card (and will in the future pursue merchant-funded offers and retailer partnerships). I'd expect to see fees come down eventually, but not in the near term, as credit cards are still baked-in to most mobile payments. (Although startups like Stuypend are trying to enable direct ACH payments).
Apple will offer something like “Apple Cash”. The groundwork is already there with its Daily Cash rewards, which are given to users as a percent cash-back on Apple Card spend (credited daily - unlike most cards which do so monthly). These points could become currency, similar to the value that sits in Venmo account or Starbucks card. From there, it's easy to enable users to default to pay using Apple Cash first, and credit cards second, via Apple Pay. This would also lower the net fees to merchants, creating more pricing pressure on cards.
Goldman will offer more financial products through Apple. The lowest-hanging fruit is a buy-now-pay-later option (similar to Affirm, Klarna, Afterpay), which has been shown to increase user purchases (both in # and $ value). But other features like round-ups would be easy to add as well.
