Tim Cook, during last week’s earnings call:
Apple Pay is off to a very strong start, and the feedback we are getting from both individuals and institutions is extremely positive. Today about 750 banks and credit unions have signed on to bring Apple Pay to their customers, and in just three months after launch Apple Pay makes up more than 2 out of 3 dollars spent on purchases using contactless payment across the three major U.S. card networks. […]
More merchants are excited to bring Apple Pay to their customers and adoption is strong. Just today, USA Technologies announced they made Apple Pay available at about 200,000 places where everyday payments happen, including vending machines in businesses, airports, and schools, commercial laundry machines in colleges, universities, and laundromats, and parking meters and payment kiosks in lots across the country.
Point of sale suppliers tell us they are seeing unprecedented demand from merchants, and all of our partners and customers simply love this new service. With all of this momentum in the early days, we are more convinced than ever that 2015 will be the year of Apple Pay.
Apple Pay will succeed for one simple reason: Everyone in the system has an interest in it succeeding. Card issuers like Apple Pay because it reduces their fraud liability. Card networks like it because it reinforces their role in the system. Merchants like that it precludes Target-style data breaches. Everyone has a reason to want Apple Pay to succeed, so it will.
How much Apple will profit from Apple Pay is anyone’s guess. Mine is: Over time, a lot. In the U.S. alone, credit and debit card transactions totaled $3.9 trillion in 2013. Since Apple gets a .15 percent cut of every Apple Pay transaction, a measly 10 percent transaction share is worth $585 million. One year, one country, $585 million. Over time, Apple will make billions from Apple Pay.
Though Apple Pay will make Apple a ton of money, the strategic implications of the service are worth far more. With Apple Pay, Apple leveraged its business model, cultural influence, and customer base to enter arguably the most heavily-regulated international system on Earth in a way that everyone already in the system had a reason to like. This is an incredible accomplishment, and no other company could have done it.
Google does not control Android enough to create anything truly comparable to Apple Pay. Even if Google were able to add Apple Pay’s software components to Android, the company would have to rely on its hardware partners to replicate Touch ID and the secure element and to seamlessly integrate everything together. They’re not going to be able to do that for the foreseeable future.
So that’s the strategic significance of Apple Pay — it’s the first time Apple leveraged its strengths to create a highly profitable yet uncopyable service that is destined for success.
Though we’re still in the early stages of Apple Pay, I think Apple is planning to leverage those same strengths to create another uncopyable billion-dollar service. Consider what else Tim Cook mentioned during his prepared statement on last week’s earnings call:
There’s also been incredible interest in HealthKit, with over 600 developers now integrating it into their apps. Consumers can now choose to securely share their health and wellness metrics with these apps, and this has led to some great new and innovative experiences in fitness and wellness, food and nutrition, and healthcare. For example, with apps such as American Well, users can securely share data such as blood pressure, weight, or activity directly with physicians. And leading hospitals such as Duke Medicine, Stanford Children’s, and Penn Medicine are integrating data from HealthKit into their electronic medical records so that physicians can reach out to patients proactively when they see a problem that needs attention. With HealthKit and the iOS Health app, we believe we’re just at the beginning of amazing new health and wellness solutions for our customers.
In other words, Apple is laying the requisite foundations today to announce a healthcare service tomorrow. It’s building relationships with key players, enabling third party hardware innovation through HealthKit, getting people comfortable with iPhones as health repositories, and in the secure enclave and Touch ID, Apple already has a method to store and share healthcare data securely.
Over the next few years, Apple will add more sensors to the iPhone and Apple Watch that can be used to measure your health, and third-party medical accessories designed for use with iOS devices will continue to grow in popularity. The healthcare industry will salivate for the resulting data.
This dynamic will allow Apple to enter the healthcare field in a number of extremely valuable ways. Insurance companies could subsidize iOS devices to get access to data they’d use to reduce their risks. People could own their medical data and share it with doctors at will. Your iOS device could automatically alert a medical professional if something bad happens. These are just a few ideas, but the possibilities are endless.
Like Apple Pay, Apple’s entry into healthcare will be incredibly lucrative. In 2013, U.S. healthcare spending totaled $2.9 trillion. Healthcare systems vary significantly from country to country, but data is valuable in every one of them. This will be worth billions.
Not only will it make Apple a ton of money, but Apple’s healthcare service will also be uncopyable for a significant amount of time after it’s announced. No one can copy Apple Pay because no one can integrate hardware and software the way Apple can, and Apple’s health service will take hardware-software integration to a whole new level.
Apple reported the most profitable quarter in history last week, but the company is just getting started.