Apple Ebook

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2016 PYMNTS.COM | ALL RIGHTS RESERVED
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INTRODUCTION
Apple, always the trendsetter, did something in 2015 that few if any companies
have ever done. It managed to have two completely different years in a 365-day period.
Which actually makes it somewhat difficult to rank, rate or evaluate Apple 2015
performance in a way that doesnt sound a little contradictory or incoherent, because
when asked, So how did Apple do in 2015? the most sensible answer is probably
another question.
Which one the first one, or the second one?
Apples 2015 No. 1 a time period roughly, but not entirely contiguous with the first
half of the year was undeniably awesome. The iPhone 6 didnt so much beat sales
records as annihilate them, banks were lining up around the block to sacrifice a piece of
their beloved interchange fees for a piece of the Apple action, and those same banks
also decided to take on the challenge of advertising Apple Pay. The possibility of a
trillion-dollar valuation actually seemed pretty viable and in the Apple Watch it seemed
the company had finally done the impossible: created a wearable consumers wanted to
purchase instead of openly mock (we miss you every day, Google Glass).
The dominant question

in late 2015 was: Can
Apple continue to be the
most powerful company
on Earth essentially on
the strength of one
product, even a product
as historically successful
as the iPhone?
In most situations, any and all of those things would be reason enough for party hats.
But Apples 2015 No. 2 a time period roughly, but not entirely contiguous with the
second half of this year was not quite so rosy. For all of its hype, Apple Pay didnt
quite attract users or merchants at the rates initially expected, the Apple Watchs status
as a success is largely unknown (ditto to Apple Music), the iPhone 6s doesnt seem to
have sold as well as expected and the Apple TV was mostly met with yawns without a
streaming service to go with it. Almost all at once, the invincible seeming company was
the object of investors concern, particularly about the diversity of its product line. The
dominant question in late 2015 was: Can Apple continue to be the most powerful
company on Earth essentially on the strength of one product, even a product as
historically successful as the iPhone?
And as it turns out, there are no easier answers to any of those questions. Apples
successes are legitimate and staggering, and their failures arent so much clear
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misses as mostly unknowns. And that situation is exacerbated by Apples generally low
enthusiasm level for sharing any results that are not mind-bendingly awesome.
So whats an Apple watcher to do in the face of so much uncertainty? Well, you could
try to read everything published on the subject in the last year, but that would be
inefficient. So, instead, you could read this eBook and get the easiest and most
accessible guide to last years roller coaster ride with the worlds most successful firm.
Buckle in for the ride!
CHAPTER 1
THE YEAR OF APPLE PAY

While we dont imagine Tim Cook has much in the way of regrets, we imagine that
sometimes he might wish that perhaps he had been a bit more conservative in his
estimation of where Apple Pay was going (and how fast it was getting there) in January
of 2015.
...Despite its massive

power as a consumer
brand and its army of
loyal fanboys, Apple
wasnt actually ideally
positioned to launch a
payments platform. Apple
didnt have enough
merchants already on
board, nor enough
consumers showing
interest and without a
massive amount of one or
the other (or a large
number of both),
payments platforms
historically dont fly.
But they do say to go big or go home and Apple didnt get to where it is by going
home a lot.
Which makes Tim Cooks 2015 will be the year of Apple Pay declaration less than
wholly shocking. Perhaps it was ill-advised, but not surprising. And besides, things were
looking pretty good back then.
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 noted on the investor call during which he declared 2015 the
year of Apple Pay.
Of course, even back then, there were doubters, most notably MPD Chairman Dr. David
S. Evans, who noted that, despite its massive power as a consumer brand and its army
of loyal fanboys, Apple wasnt actually ideally positioned to launch a payments platform.
Apple didnt have enough merchants already on board, nor enough consumers
showing interest and without a massive amount of one or the other (or a large
number of both), payments platforms historically dont fly.
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However, whatever the eventual outcome for Apple Pay, as of January 2015 it had
already pulled off a minor miracle that may have passed hardcore payments followers
by: Apples move into mobile signaled the beginning of mainstream interest in the topic,
from the news media to the average suburban consumer in the U.S.
Which in turn changed the conversation about mobile, subtly but noticeably. The main
question was no longer if mobile would ignite, but instead when it would ignite and who
would ignite it.
Unfortunately for Tim Cook, the answers to those two new questions are not clearly
Apple Pay at this point.
Tim Cook: 2015 The Year Of Apple Pay

We are in the first inning.
2015 will be the year of Apple Pay.
Apples move into mobile

signaled the beginning of
mainstream interest in the
topic, from the news
media to the average
suburban consumer in
the U.S.
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 companys firstquarter earnings call yesterday (Jan. 27), Cook gave analysts a peek into Apple Pays
success, and in true Apple fashion he alluded to the products 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
Click here to read the

article on PYMNTS.com
has seen the use of Apple Pay increase by more than 400 percent.
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Citing the example of USA Technologies, which announced yesterday that theyd 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 theyll 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 theres still work to do at home
particularly with merchant adoption and convincing consumers to use Apple Pay
Cook indicated theres evidence Apple Pay can succeed on an international level.
I think we are in the first

inning on [Apple Pay],
and we havent even
completed the first inning
yet. Theres tons of things
on our roadmap for
adding functionality to it.
Were obviously just in the
U.S. right now so theres
tons of countries to go
to." - Tim Cook, Apple
CEO
I think we are in the first inning on [Apple Pay], and we havent even completed the first
inning yet. Theres tons of things on our roadmap for adding functionality to it. Were
obviously just in the U.S. right now so theres tons of countries to go to. Theres not a
day that goes by that I dont 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 were 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? Its 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 dont quite know how many of them are
actually using the app.
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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: thats 74.5
million the number of iPhones Apple sold in Q1. But because Apple doesnt release
its precise inventory figures, its impossible for those outside of Apples 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 Apples iPhone sales growth was Apples 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 Apples retail sales, Cook indicated that the companys
growing presence in China will help show a shifting global market for the company.
We believe that [the

iPhone] is the best
smartphone in the world.
Our customers are telling
us that, the market is
telling us that. Were
doing well in every
virtually every corner of
the world and so were
very bullish that it does
have legs. - Tim Cook,
Apple CEO
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 didnt 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. Apples eCommerce presence is also growing and available in over 350 cities
in the country.
And Cook certainly wasnt 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. Were doing well in every virtually every
corner of the world and so were very bullish that it does have legs.
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What Cook also said will have legs in 2015 is Apples 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 hasnt rolled out its next product. And by
this time next year, well 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
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. - Tim
Cook, Apple CEO
Apples 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. Apples 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 wasnt going to give up details on the numbers. He also didnt give
projections for iPhone 6 or 6 Plus sales, but did stress during the call that Apple cant
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.
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Apples Q4 talks were much more payments focused than the companys third quarter,
which strangely enough didnt have any questions from analysts about Apples 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 weve 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 companys 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 alltime 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, Apples 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 thats a speculative figure, Apple will have to
keep relying on its iPhone sales figures as indication if theres consumer interest in at
least owning the device that gave new life to the mobile payments industry. The next
step, as its been since last September, is convincing those consumers to use that
smartphone to make mobile payments.
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OTHER READING
Apple Pays Most Unusual Ignition Strategy
http://www.pymnts.com/news/2014/apple-pays-most-unusual-ignition-strategy/
Apple Pay A Bust On Black Friday
http://www.pymnts.com/news/2014/apple-pay-a-bust-on-black-friday-new-datashows/
Apple Pay Fizzling? No Way Man, Its Sizzling!
http://www.pymnts.com/news/2014/is-apple-pay-fizzling-no-way-man-its-sizzling/
CHAPTER 2
THE SLOW MARCH TO ADOPTION

Apple spent much of 2015 learning the two lessons that many others who have flown
close to the sun in payments have also learned the hard way:
1)
Consumers are stubborn and dont like doing new things
2)
Merchants run on narrow margins and dont make expensive upgrades unless they
absolutely have to (and sometimes, as EMV has proven, not even then).
Which meant that after the big initial pops mentioned during Apples Q1 earnings report
last year and the first big waves of super-early adopters downloading and installing
Apple Pay, the long, slow march toward increased consumer use and merchant
acceptance began in earnest.
It is impossible to know with certainty exactly how slow that march has been, mostly
because Apple in the last year has released no official figures on Apple Pay. While by
inference one can assume that means the numbers are not awesome (as Apple is
usually pretty forthcoming when they are succeeding ridiculously), it is hard to gauge if
those numbers are mediocre or actively alarming.
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Especially because Apples lack of official releases has in no way stopped many, many
research firms and consultancies from putting together their own estimates, which have
the curious tendency of offering an incredibly wide range of results. Sometimes, by
some counts, Apple is dominating the market and consistently picking up market share.
Other times, by other counts, Apple is getting the stuffing kicked out of it by consumer
indifference and merchant hostility.
Luckily, PYMNTS and InfoScout have been tracking Apple Pays adoption all year
and instead of consulting complicated models or relying on consumers self-reporting
their habits, we just looked at thousands of receipts, specifically of consumers who
could have used Apple Pay (i.e. had the right phone and were in a store that would
have accepted it).
The pattern was pretty clear. Early-on adoption was growing, but slowly, with the vast
majority of potential iPhone users never so much as trying the service. As the year wore
on, and less technologically inclined later adopters started upgrading to the iPhone 6,
adoption numbers plateaued and then fell such that Apple Pays Black Friday numbers
in 2015 were actually worse than the 2014 results.
It is impossible to know
with certainty exactly how
slow that march has
been, mostly because
Apple in the last year has
released no official figures
on Apple Pay.
And those results were widely considered to be a bust at the time.
Apple Pay By The Survey

The Internet is good for many things not the least of which is numbers. Want to know
how many people are living Peoria right now? The Internet has your back (~116,000).
Need to know Avogadros number? No need to find a chemist Google can tell you
(6.0221413e+23)
The Internet has pretty much destroyed the old problem of limited access to data and
created a whole new one too much data without context. The World Wide Web is
awash with facts and figures the problem is not all figures tell the right story. You know
the old adage that there are three kinds of lies, lies, damn lies and statistics? Thats a
nod to the fact that one can use numbers in just about any way to make a point. And,
thanks to Google and Sir Tim Berners Lees invention of the World Wide Web, a survey
a year ago of 50 redheaded women between the ages of 25 and 30 who when asked
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about buying shoes, say that they only buy red ones, turns into a new finding about
how Millennial women now overwhelmingly express a preference for red shoes.
This, of course, is an exaggeration to make an important point. And, that is the
importance of understanding the details and associated rigor with which surveys and
data and results are done.
And that brings us to Apple Pay.
This weeks contribution to the growing Apple Pay data set is a new survey released by
451 Research entitled Apple Pay Outperforming PayPal in Mobile Payments.
Here is its conclusion.
Our latest survey shows planned use of Apple Pay has been on an upward trajectory
since it became available six months ago with the service helping to spark consumer
demand for mobile payment technologies, said Andy Golub, Survey Research Director
for 451 Research. Although consumer perceptions of security remain an issue, the
results point to marked improvements in this area.
Early-on adoption was

growing, but slowly, with
the vast majority of
potential iPhone users
never so much as trying
the service. As the year
wore on, and less
technologically inclined
later adopters started
upgrading to the iPhone
6, adoption numbers
plateaued and then fell
such that Apple Pays
Black Friday numbers in
2015 were actually worse
than the 2014 results."
But what we dont really know is who they asked iPhone 6 consumers, iPhone
consumers or just people on the street and how they drew their conclusions, which
are all over the Web now and undoubtedly in a slew of PowerPoint decks already.
Their results are also somewhat inconsistent with the results of the work InfoScout has
done to track Apple Pay Transaction volume. They ask consumers who, in fact, own
iPhone 6s why, how and whether they use them for payment and why after leaving a
store that accepts Apple Pay. Security is not an issue that ever comes up and in fact,
consumers who use Apple Pay really like the experience. They just forget to use it since
it is not available in enough of the places they shop to make it a habit, and offers
nothing more than payment, at least today, to make consumers go through the trouble
of remembering.
The timing of these findings is also interesting given PayPals announcement of its Q1
performance yesterday, which do seem to show PayPal with a bit of the mobile
payments wind at its back. PayPal gained 3.6 million new active accounts in Q1, an
increase of 11 percent, to 165 million registered accounts, processed more than 1
billion transactions in the quarter, which is an increase of 24 percent and saw customer
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engagement spike as PayPal transactions per active account increased to 23 and

monetization per active account jumped to $49.
Perhaps 451 Researchs conclusions about Apple Pay sparking momentum for mobile
payments is right and has helped drive interest in consumers using PayPal!
But as positive as this is, pun intended, PayPals performance and Apple Pays is a bit
of an Apples and Oranges comparison. Apple Pay survey data, at least for the most
part, is about measuring in-store usage, mostly, and PayPal is about online/mobile
mostly. Neither PayPal nor Apple Pay have been successful at igniting mobile payments
at the physical point of sale for all of the reasons that weve been writing about forever
now. Its just hard, and takes time and merchant initiative to enable it.
But theres conflicting data on Apple Pay usage, and this is not an uncommon issue
especially in discussion of Apple Pay. One set of data says one thing and a different
set of data indicates something entirely other. In late 2014 during the holiday rush,
something similar happened. InfoScout released a report that indicated Apple Pay was
fizzling with consumers, while ITG put out a report that indicated it was positively
sizzling.
So whats happening? Damn lies and damn statistics? Not quite. Taking a closer look at
the new 451 Research study and a handful of the most popular ones released before it,
it emerges that everyone seems to be reporting honestly on different topics.
Specifically, all the researchers are gathering the data differently targeting different
groups, asking different questions and measuring different things. Some studies like
InfoScouts measure actual use by counting receipts and asking iPhone 6 users who
could use their phones in a store that accepted it why they didnt. Other studies like
ITG or Phoenix Marketings rely on consumers reporting on their use habits and its
not clear that all of those consumers are all iPhone 6 users. And some like the 451
Research data do no actually report on use at all that study that boldly finds that
Apple Pay is dusting PayPal does not actually contain a single piece of data on
consumer use instead it focuses on consumers intended use in the future.
So, in order to at least lay it all out there so that you can see it all for yourself and then
decide how or if to use the data in your next PowerPoint presentation, take a look at
our pretty chart to find out who asked who what, and when and what they reported.
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APPLE PAY BY THE SURVEY | AS OF APRIL 24, 2015

Source | PYMNTS.com
Our latest survey shows

planned use of Apple Pay
has been on an upward
trajectory since it became
available six months ago
with the service helping
to spark consumer
demand for mobile
payment technologies. Andy Golub, 451
Research
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... All the researchers are

gathering the data
differently targeting
different groups, asking
different questions and
measuring different
things.
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OTHER READING
Wanna Know How Many Apple Pay Users There Are?
http://www.pymnts.com/in-depth/2015/wanna-know-how-many-apple-pay-usersthere-are/
Apple Pay Adoption: Improving But Still A Long Way To Go
http://www.pymnts.com/in-depth/2015/apple-pay-adoption-improving-but-still-a-longway-to-go/
Pii360 : The Payments Innovation Index, Powered By Market Platform
Dynamics
http://www.pymnts.com/pii360/
CHAPTER 3
ITS NOT EASY GOING GLOBAL

In the U.S., where interchange fees are fairly high and likely to remain so in light of
being affirmed by the US Supreme Court banks were willing to sacrifice 15 basis
points to Apple in the hopes that some of Apples Pays widely forecasted customerattracting magic would rub off.
In the rest of the world, where regulators take a much dimmer view of swipe fees and
they are legally mandated at a much lower level, issuing banks are somewhat less
enthusiastic to hand over those 15 basis points, as that is a proportionally large bite out
of their fees.
And when the issuing banks of the world decide they arent so interested in paying to
pay, it gets a lot harder for a payments platform to take the world by storm.
And so progress was slow and for the vast majority of 2015, Apple Pay was a U.S.only way to pay, unless one happened to be a foreign national carrying an Americanissued card.
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However, as the year started to wind down into the fall, progress was made. American
Express gave Apple a major assist by helping them launch globally, first in Australia and
then in Canada. 2016 is expected to bring launches in Spain and Singapore.
That move incidentally did very little to endear Apple to the issuing banks of Australia,
which are now openly accusing Apple and Amex of not playing fair, and more or less
refusing to support Apple Pay.
But in the U.K., Apple and the bulk of the country's big banks found a way to bury the
hatchet over fees and get Apple Pay launched, though what the exact structure of
those deals is remains a mystery.
And finally, just under the wire as the year was closing out, UnionPay announced that
they would be teaming up with Cupertino to bring Apple Pay to the mobile-enthused
Chinese market.
Of course, whether the Chinese market is a great place for Apple to be hanging out is
something of a question mark, but lets not get ahead of ourselves thats still a
chapter away.
Apple Pays Business Model Blues
...when the issuing

banks of the world decide
they arent so interested
in paying to pay, it gets a
lot harder for a payments
platform to take the world
by storm.

There is no shortage of things to say about Apple Pay which is why we developed an
entire Tracker on the subject.
However, for all the focus on the technology powering Apple Pay, the security that
keeps its payments credentials airtight, how many consumers use it and how many
merchants accept it, the one thing that doesnt get a lot of airtime is the business model
that underpins it.
Of course, the essence of the Apple Pay business model is the money Apple makes on
the sale of hardware the iPhone 6/6 Pluses. Selling hardware is how Apple always
makes money, and Cupertinos hope is that Apple Pay is such a cool mobile payments
app that consumers will buy/upgrade/switch their current phone to its newest Apple
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Pay-enabled model. Apple even made news recently when it launched its trade-in
program designed to get consumers to do just that. (And it seems to be working.)
Of course, Apples app store is legendary and why consumers and developers both
love the Apple platform. But of the $182.8 billion in revenue that Apple booked last year,
only $15 billion came via the sale of apps. ($15 billion high margin dollars, mind you, but
app store revenue is roughly 8 percent of the total.)
So, the real shocker when Apple Pay launched in October of 2014 was the little toll
booth that Apple placed between it and the issuers whose cards are so elegantly
provisioned in the Apple Pay wallet. That toll booth collects a small toll, 15 basis
points (0.15 percent or 15 cents on a $100 transaction), from the issuer each and every
time their card is used at a merchant.
And that tool isnt going to make Apple rich.
Piper Jaffrays low-end estimate forecast that this fee will bring in $118 million in
revenue in 2015, increasing to $310 million in 2016. On the high end, Nomuras equity
analysts estimated it could account for $1.6 billion in revenue by 2017 two years from
now.
The real shocker when

Apple Pay launched in
October of 2014 was the
little toll booth that Apple
placed between it and the
issuers whose cards are
so elegantly provisioned
in the Apple Pay wallet.
That toll booth collects a
small toll, 15 basis points
(0.15 percent or 15 cents
on a $100 transaction),
from the issuer each and
every time their card is
used at a merchant.
Which in Apple parlance is pretty much bubkus, a mere rounding error at a firm that has
$160 billion in the bank and is positioned to be the worlds first trillion dollar market cap
company.
NOW, APPLE PAYS ISSUER FEE IS CONTROVERSIAL

ON A NUMBER OF FRONTS.
First, when the carriers proposed something similar with Isis/Softcard back in the day,
the issuers and merchants threw up all over it. It was a non-starter. What, they said.
Put a barrier between me and my customer and charge me on top of that? You have
to be nuts!
Or five years later, Apple, and all of its allure as a beloved consumer brand.
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In the United States, interchange is a well accepted, if not very well liked, reality of the
payments ecosystem.
But thats not the case everywhere else in the world.
WHICH IS CONTROVERSIAL POINT NO. 2.

When Apple knocked on the issuers doors in the U.S. and asked for a cut of their
interchange revenue, there was actual interchange revenue on the table to discuss and
to take a cut of.
When Apple knocked on

the issuers doors in the
U.S. and asked for a cut
of their interchange
revenue, there was actual
interchange revenue on
the table to discuss and
to take a cut of.
However, as Apple is trying to expand outside the U.S., not all issuers are as
enthusiastic about having that discussion. In most parts of the world, interchange
revenue is as thin as a runway model. Pretty soon, as a result of an almost finalized EU
regulation, credit cards in the EU will be at 30 basis points, so Apple would be taking
half of that. Debit will be at only 20 basis points.
International issuers are less than interested in handing over a section of a small amount
of revenue just for the privilege of letting their customers pay the Apple Pay way.
So will global iPhone 6 owners (without U.S. issuer-based cards) be paying with Apple
Pay at a merchant near them any time soon?
Well
IT PLAYS IN BOSTON (AND NEW YORK, L.A., SAN

FRANCISCO)
As all of you inside baseball payments aficionados know well, the interchange fee is
what the merchant pays to the issuing bank every time a consumer uses a card. The
interchange fee is set by the card networks and represents the largest component (70
percent to 90 percent) of the fees merchants bear for accepting electronic payments
transactions. How exactly that rate gets set for individual cards is based on a variety of
circumstances including card brand, regions, the type of card (credit/debit), the type
and size of the accepting merchant, and whether the card is physically present at a
merchant or not.
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That very simple explanation unleashes a torrent of surprisingly complex reactions to the
concept.
Merchants who ultimately pay this (and all other swipe fees) hate it.
Issuers and card networks love it.
Consumers dont know and dont care.
As a result of bullet point No. 1, there has been a long and protracted history of
merchant ligation over the issue. That litigation has been largely unsuccessful.
It hasnt stopped merchants, however, from wanting to do something about interchange
and that something isnt about making those fees higher. For example, a large
consortium of them in the form of MCX developed a yet-to-be launched mobile
payments scheme that would ride alternative rails that would be cheaper for them to
process and accept.
Sort of.
MCX and its members have poured millions of dollars into developing their own
payments network; a network that, in theory, would make the cost of accepting a
payments product cheaper than it is for them now. wrote MPD CEOKaren Webster in a
commentary late last year. You have to really be mad at the networks to take such a
costly and extreme step.
MCX and its members

have poured millions of
dollars into developing
their own payments
network; a network that,
in theory, would make the
cost of accepting a
payments product
cheaper than it is for
them now. You have to
really be mad at the
networks to take such a
costly and extreme step.
- Karen Webster, CEO
Market Platform
Dynamics
Since, of course, operating a payments network isnt exactly free. And until MCX gets
up a head of steam, merchant members would be forced to accept all forms of
payment see bullet point No. 3 above. Consumers dont know and dont care about
interchange they just want to use the cards they want to use at their favorite
merchants.
Meaning, This isnt a battle being fought over security or ease of use, John Zurawski,
an executive at Authentify, told CNN. Its a battle being fought over interchange fees
that merchants pay.
ENTER APPLE.
Apple keeps Apple Pay users on the standard credit and debit rails. When it launched,
Apple made a point of saying how much of an advantage it was for them to embrace
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the payments ecosystem that is known to consumers and merchants and knows how
to run a payments network.
So, it wasnt all that surprising that issuers were willing to give up a cut of their fees in
order to enlist Apple as their champion to ignite a nascent mobile payments scheme
one that leveraged the NFC technology that most had left for dead by leveraging the
powerful Apple brand and the infrastructure that they were already a part of.
Moreover, Apple Pay users seem to favor and use credit more than debit card products.
Our own PYMNTS/InfoScout Apple Pay Transaction Tracker released in March 2015
showed that 85 percent of users have at least one card registered to their Apple Pay
account, and 63 percent of those cards are credit cards. At stores where consumers
might have used debit more like grocery with Apple Pay, those transactions now
show a more than noticeable tip toward credit card usage.
Apple keeps Apple Pay

users on the standard
credit and debit rails.
When it launched, Apple
made a point of saying
how much of an
advantage it was for them
to embrace the payments
ecosystem that is known
to consumers and
merchants and knows
how to run a payments
network.
Which could make some merchants even grumpier as the cost to them to serve that
consumer goes up.
But, as weve said repeatedly, if Apple Pay can drive more spending by more customers
who prefer their store because they accept Apple Pay, merchants will accept Apple Pay
because thats what their consumers want to use and dont know and dont care how
much it costs the merchant to do so.
Making merchants just a little nervous maybe not so much now that Apple Pay
volume is low but potentially a lot nervous if Apple Pay gets a head of steam. More
consumer traction and dependence on Apple Pay, merchants have said, could put
them behind a pretty big interchange eight ball at some point.
BUT ITS LIKELY TO MISS IN BERLIN

That, situation is very different in Berlin, Paris, London or any other European city.
In Europe, interchange is next to nothing in several sizeable countries and going to
probably be next to nothing if the regulators have their way, Webster wrote last
October. Its unlikely that issuers, who will get hardly anything when their cards are
used, will be willing to pay Apple anything like the fees it is getting from U.S. issuers.
Apple will just have to be happy selling iPhones and making money some other way. Its
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hard to see Apple Pay generating the same sort of excitement from European issuers.
And, in fact, European regulators did get their way and in March voted overwhelmingly
to cap interchange fees. By a 621-to-26 vote, the move officially codified a deal that
was struck in December between lawmakers and the EU Council to set the caps at 0.2
percent for debit and 0.3 percent for credit transactions. The ruling also set limits on
Visa and MasterCards Honor All Cards rule. For consumer debit cards, the new rules
also allow individual EU member states to set lower percentage caps and impose
maximum fee amounts.
This legislation will put a cap on interchange fees, make them more transparent and
remove a hurdle to rolling out innovative payment technologies, said EU Commissioner
Margrethe Vestager, whos in charge of competition policy for the Commission. It is
good for consumers, good for business and good for innovation and growth in Europe.
And while these caps might be very good for all of those parties as Commissioner
Vestager believes they will be it is certainly not going to be good for Apples hopes of
getting European issuers to hand over any part of those fees.
All of that uncertainty has certainly slowed the pace of rollout in the U.K. and Europe,
despite the rapid clip sales of iPhone 6s there. Its hard to make a persuasive case to
an issuer who is getting nothing in the way of interchange and who is faced with having
to dig into other revenue buckets to write Apple a check.
In Europe, interchange is
next to nothing in several
sizeable countries and
going to probably be next
to nothing if the
regulators have their way.
Its unlikely that issuers,
who will get hardly
anything when their cards
are used, will be willing to
pay Apple anything like
the fees it is getting from
U.S. issuers. Apple will
just have to be happy
selling iPhones and
making money some
other way. Its hard to see
Apple Pay generating the
same sort of excitement
from European issuers. Karen Webster, MPD
CEO
AND IT LEAVES BEIJING COOL

Chinas Central Bank also forced interchange fees down to close to nothing. Not
surprisingly, the Chinese banks, all part of the Union Pay system (sort of the Visa of
China), arent excited about shelling out 15 basis points any more than their European
counterparts.
Apple is reportedly having difficulty in its ongoing negotiations with at least eight major
Chinese banks that belong to Union Pay. Chalk it up to that other i word
interchange. Quite simply, Chinese issuers are balking at a 15 bps cut of the
interchange fee they think that amount is too high. According to an employee of one
large bank, they just dont want to give up such a large percentage to Apple.
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Now, this could all be just posturing and good negotiating tactics on the part of issuers
all over the world. After all, Apple did persuade many of the nations largest banks to not
only roll with their mobile wallet, but actually pay them to be part of it. And those issuer
partners have even done Apple Pay one better, and created extensive advertising
campaigns to highlight how much they support Apple Pay.
But a business model based on interchange that doesnt exist in any material way
outside of the U.S. makes global expansion difficult without some thought about what
the right business model for Apple should be.
And that is all a function of how serious they are about payments.
Consumers dont have enough places to use Apple Pay to make it a driver of their
iPhone 6 purchase. But theyll keep buying them because it has lots of other cool
features that they do love. That means that Apple will still ring that HUGE cash register
called hardware whether or not Apple Pay is a success.
Consumers dont have

enough places to use
Apple Pay to make it a
driver of their iPhone 6
purchase. But theyll keep
buying them because it
has lots of other cool
features that they do love.
That means that Apple
will still ring that HUGE
cash register called
hardware whether or not
Apple Pay is a success.
But ringing the payments revenue register now or a few years from now will rest with
the decisions they make about how they use incentives to get the right stakeholders on
board. Clearly, they have the consumer getting the banks and the merchants will
take more than the other i word to pull off.
Of course, it could also be posturing by Apple, which may drop its fee entirely or in part
as it realizes the economics dont work out for the banks either. Remember, again
what Apple really wants is to sell phones.
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OTHER READING
The Apple Pay/Amex Global Adventure
http://www.pymnts.com/in-depth/2015/the-apple-payamex-global-adventure/
Apple Pay In The UK
http://www.pymnts.com/in-depth/2015/apple-pay-in-the-u-k/
Apple Pay Gets More UK Bank Support
http://www.pymnts.com/news/payment-methods/2015/apple-pay-gets-more-uk-banksupport/
Apple Pays Canadian Day
http://www.pymnts.com/news/2015/apple-pays-canadian-day/
CHAPTER 4
THE CHINA QUESTION

Tim Cook and team Apple have been extremely bullish on China for the entirety of 2015
and for very good reason. China is the fastest growing market in the world, with the
fastest growing middle class. And those middle class shoppers do not need to be
converted to mobile commerce, as mobile commerce is almost de rigueur in China.
And China is also dominated by different A players, or a pair of them actually: Alibaba
and its offshoot payments platform, Alipay. Which presents Apple an interesting and
unique challenge. They don't have to convert consumers to mobile in China to the
extent they do in the U.S. or Europe, but they do have to convince those consumers
that they would rather use the import than the homegrown hero (or the homegrown
heroes if you count second runner-up Tencents Tenpay).
However, Apple does have some experience in persuading Chinese consumers away
from homegrown heroes, as the incredible success of the iPhone in China has
demonstrated. At various points in 2015, Apples iPhone has been the best-selling
phone in China, edging out Xiaomi and Huawei and their vastly less expensive products.
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Plus, after months of back-and-forth with UnionPay and an apparent loss to a

smaller British player Apple managed to get a deal with UnionPay signed and sealed
in the 11th hour, though Apple Pay delivery wont be achieved until 2016.
But Apples big problem is China is the same as every other players struggle with big
Chinese exposure: it is unclear just what comes next for the Chinese economy. After
more than a decade of recording-setting growth the Chinese economic engine is
slowing down, the stock market has gotten volatile, and analysts and observers
worldwide are trying to figure out if China is currently sitting on a plateau in advance of
resumed growth or if the worlds most dynamic economy has settled into a calm
before for the full tilt economic storm begins.
But Apples big problem

is China is the same as
every other players
struggle with big Chinese
exposure: it is unclear just
what comes next for the
Chinese economy
And for as long as that issue remains essentially unsettled, Apples bullishness on their
future fortunes in the Chinese market remains difficult to evaluate. If China gets back to
growing and its middle class stays super enthused about spending, Apple is in good
shape. But if not, well, it seems worth noting that less than a week into 2016, reports
are circulating that Apple is cutting iPhone 6s orders, at least partially due to weakness
in Chinese sales.
Not a good sign.
And, as the next chapter demonstrates, its not the only one.
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Apples China Crisis

Roller coasters are a lot of fun when theyre in theme parks. But on Wall Street, no one
loves a roller coaster ride or, as weve experienced this week, an inverse roller
coaster ride.
Most coasters start with a long and suspense-building climb before the plunge. This
weeks wild ride in the stock market got right to the point and kicked off with a 1,000
point stock drop right out of the gate. Tuesdays open had the appearance of a
turnaround, but despite getting up by as much as 400 points throughout the early
buildup, the market went cold right at the end of trading, and wiped out the days gain.
But the U.S. markets bounced for real this time on Wednesday and managed to close
600 points up combined with gains as of the time this article was written. By the
midway point in Thursdays trading in the U.S., most of the early week losses had been
erased.
Whew.
As it turns out, Apple is

in an unusually
interdependent
relationship with China
and faces more than
average risk from
economic weakness
overseas.
Yet concerns persist.

Chinese market instability is what set off the six-day stock sell-off, and the Chinese
outlook remains a concern.
The downward trend has not changed. The market is on track to bottom out, said
Shenzhen-based Yang Delong, chief strategy analyst at China Southern Asset
Management, in an interview with The Washington Post. The rebound [in China] is a
technical rebound. It is the market self-correcting after several recent big drops.

And while bad news for China has proven to be tough for the entire global economy, it
is particularly hard on Apple. Investors were so worried about it Monday, that Apples
stock briefly dipped below $100 per share. The situation turned around with a
surprising intervention from Apples chief himself but some Apple watchers are still
nervous.
As it turns out, Apple is in an unusually interdependent relationship with China and
faces more than average risk from economic weakness overseas. Which means that
while others in the global economy may be hopping off the roller coaster this week,
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Apple may have merely been getting a taste of things to come.
A DIMINISHED MARKET FOR GOODS

While the fireworks were particularly bright this week, concerns about Apples exposure
to China have been cropping up for the last month and have been one of the factors
that has contributed to the 23-percent erosion in Apples stock price during that period.
Apple has been a favorite brand of the emerging Chinese middle class. Sales in-nation
are growing faster than they are worldwide and Apples global sales are pretty strong.
Fundamentally, the
overall stability of the
Chinese economy has
not changed, and positive
factors sustaining a turn
for the better in the real
economy are
accumulating. - Li
Keqiang, Chinas Premier
But, Apples Chinese sales growth has been astonishing.

Last fiscal year, China generated $29.85 billion in sales a 135 percent pick up from
three years earlier. During the last quarter, iPhone sales shot up 87 percent but the
general smartphone market in China only grew 5 percent, indicating that it has quite a
lot of potential ground to capture.
And Apple will like be looking west for that growth, particularly as the U.S. market is
approaching saturation with the latest iPhone release and theres no apparent
successor to the iPhone as an alternate revenue generator, at least so far. However,
Apples continued success in the Chinese market depends on a Chinese middle class
that continues to grow, thrive and feel comfortable spending.
Which, it should be noted, Chinas premier Li Keqiang has every confidence it will, as he
believes the general economic conditions in China are much better than currently
believed.
Fundamentally, the overall stability of the Chinese economy has not changed, and
positive factors sustaining a turn for the better in the real economy are accumulating,
he said in a meeting Tuesday, state media reported.
And thats a view the premier of China seems to share with Apple CEO Tim Cook.
I get updates on our performance in China every day, including this morning, and I can
tell you that we have continued to experience strong growth for our business in China
through July and August. Growth in iPhone activations has actually accelerated over the
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past few weeks, and we have had the best performance of the year for the App Store in
China during the last two weeks, Tim Cook wrote in a note to Jim Cramer on Monday,
hoping to soothe investors who had becoming unusually sell-happy with their Apple
stock.
Obviously I cant predict the future, but our performance so far this quarter is
reassuring. Additionally, I continue to believe that China represents an unprecedented
opportunity over the long term as LTE penetration is very low and most importantly the
growth of the middle class over the next several years will be huge, Cook added.
Sure, tell that to the Chinese middle class guy whose stock market fortunes just got
wiped out. Chinese stocks, generally, have lost half of their value in this latest rout. And
the emerging middle class investor may be feeling a lot less confident about spending
money on anything, much less a pricey iPhone. Building that shaken confidence is why
the Chinese government is taking such extraordinary steps to pump liquidity into the
market.
Which could create big headaches for Apple.
Obviously I cant predict

the future, but our
performance so far this
quarter is reassuring.
Additionally, I continue to
believe that China
represents an
unprecedented
opportunity over the long
term as LTE penetration is
very low and most
importantly the growth of
the middle class over the
next several years will be
huge. Tim Cook, Apple
CEO
SELLING IN YUAN, PAYING IN DOLLARS

The relative strength of Chinas economy and middle class is only part of the equation
for Apple. Since the way China smoothes out its economy is unusually important to
Apple, a very devalued yuan is a big problem because of how Cupertino pays and gets
paid in China.
When Chinese consumers buy iPhones, they pay in yuan. And because Apple as a
general rule doesnt change its retail price in response to currency fluctuations, a big
drop in the value of Chinese currency means they are making less per unit sold.
This means Apple can continue selling a ton of phones to the Chinese middle class if
the yuan is entirely devalued, they wont be taking in as much revenue as they want to
be. And given that last quarter 27 percent of Apples revenue and 50 percent of their
revenue growth came from China, that is not a small hit to their bottom line.
Now you might be thinking right but doesnt Apple manufacture most of their stuff in
China? So theyre losing retail dollars but saving big on manufacturing costs, right?
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Wrong. Apple doesnt pay its big suppliers like Foxconn and Lenovo in yuan those
contracts are all negotiated in dollars. Meaning while a weak yuan can reduce Apples
revenues, it will have no lowering effect on their costs. Boeing faces a similar issue in
China though their sales are priced in dollars, not yuan, so they are somewhat less
exposed than Apple.
In short, Apple needs its Chinese customer base stable and spending, but it also needs
them to be spending a home currency that has not been radically devalued, or that
spending wont be helpful enough.
Which means Apple

probably still needs China
and will be watching
very closely to see just
how the recent economic
unrest will work itself out.
THE HAZY OUTLOOK

Of course, in the marketplace, any number of things can change. The China picture is
drawing a lot of doom and gloom predictions now, but if market volatility slows down
going into fall, concerns could still abate in much the way the Chinese premier (and Tim
Cook) thinks they will.
Apple could also see a secondary product emerge to provide an income stream
comparable to the iPhone. This week, IDC released figures that indicate Apple has
shipped 3.6 million of its wearable device implying it has been somewhat more
successful than some analysts had projected. That follows reports from Best Buy that
the Apple Watch was a big enough hit to actually boost the stores earnings.
However, while getting to the No. 2 spot in the wearable world (behind FitBit) in a short
time is a notable accomplishment, it seems at least for now the Apple Watch wont
quite have the mass appeal the iPhone does.
Which means Apple probably still needs China and will be watching very closely to
see just how the recent economic unrest will work itself out.
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OTHER READING
Apple Grabs More Of Chinas Smartphone Share
http://www.pymnts.com/news/2015/apple-grabs-more-of-chinas-smartphone-share/
Apple Pay Is Going To China After All
http://www.pymnts.com/news/2015/apple-pay-is-going-to-china-after-all/
Apple May Cut iPhone Orders
http://www.pymnts.com/news/merchant-innovation/2016/apple-may-cut-iphoneorders/
CHAPTER 5
OUT WITH NOT QUITE A WHIMPER, BUT

DEFINITELY NOT A BANG
In gymnastics, when a performer does an otherwise perfect series of moves only to
manage a spectacular wipeout at the end, it is traditionally said that they have not
stuck the landing.
And while Apple had some absolutely undeniable success throughout the year, the end
of the year is pretty clearly a paradigmatic case of not sticking the landing. Stock price
spent much of the fall falling, as the bloom rapidly came off of the Apple rose for
investors who first found themselves worried that Apple was entirely too exposed to
Chinas economy and then found themselves worried that Apple is the worlds most
magically successful one-trick pony.
A fear that is not entirely misguided.
Apple Pay has had a bumpy year as we have already demonstrated. Apple Watch
seems to have had an OK launch, but not a great one. Rumor has it that a boatload of
them sold during the holiday, but that seems just a little contradicted by the fact that
Apple Watch was heavily discounted ($100 off) throughout the season and the fact that
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it is not Apples custom to discount products that are doing extremely well.
Also falling into the big question mark category is Apple Music. At various times this
year it has been reported as both a homerun and a total flop and the building
consensus seems to be that it is neither, and that it just wont be a game changer for
Apple.
Also unlikely to be a game changer anytime soon is Apple TV, which is well reviewed,
but not rapturously reviewed. Consumers like it, but not notably better than they like the
Roku or Amazon TV and the lack of a streaming service (which no one was ever
actually promised but everyone got excited about anyway) really took a big bite out of
enthusiasm.
Which means, as 2016

is getting its sea legs, for
all the changes Apple has
seen in the last year, one
thing remains the same. It
all comes down to the
iPhone; as long as it
dominates, Apple does,
too."
And, though they didnt need any more question marks, the fate of the iPad (especially
in the context of Apples new push with IBM into enterprise computing) is also
unknown. The good news is that Apple and IBM have built all the business apps they
planned to, but the bad news is that it is still not known if building it means they will
come, especially if the they in question have spent the last 25 years using MS Office
products and have no inclination to learn something new, no matter how much they like
their iPhone.
Which means, as 2016 is getting its sea legs, for all the changes Apple has seen in the
last year, one thing remains the same.
It all comes down to the iPhone; as long as it dominates, Apple does, too.
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Apples Continually Blue Christmas

Generally speaking, the good news about a bad week is that things usually get better
by comparison. The day after your car breaks down is, for the most part, better than the
day before when it did, since although you may have lacked a working car on both
days, only one of them was spent on the side of a highway waiting for AAA to show up.
Unfortunately, that is more a guideline than a hard-and-fast rule and why the
superstitious among us never utter the phrase well, at least, things cant be worse.

After reading the payments and commerce headlines drifting through the ether this
week, we cant help but wonder if someone over at Apple, coming off of last weeks
buffet of bad news, accidentally said, Well, at least, it cant get any worse.
Because however rocky things may have looked for Apple Pay and Apple Watch last
week, they both look a little worse this week. And, adding worry lines to those in
Cupertino, Apple TV seems to have suffered a major setback, and the iPhone is looking
a lot less invincible.
So, what went wrong?
APPLE PAY, MEET WALMART PAY. NOW, MARVEL AT

ITS SCALE.
Walmart managed to pull off what will almost certainly be registered as the payments
and commerce shocker of the year with the announcement that it is jumping into the
payments arena with both feet.
Like, starting right now, with 5,000 merchant locations and 22 million consumers
enrolled in its payments method.
With none of the fanfare and fireworks of the various Pay products, Walmart
launched Walmart Pay in Bentonville, Arkansas, yesterday (Dec. 10). Early 2016 will see
the quick rollout of the planned abbreviated beta, and by the halfway mark of next year,
Walmart Pay will be in all 5,000 U.S. Walmart locations.
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A longer way of typing: Walmart Pay will be available in locations that are within 15
minutes of where 87 percent of the American population lives.
Walmart reports that 140 million consumers (or 77 percent of the U.S. adult population)
visit its physical stores each week. Online, in November and December alone,
Walmart.com is anticipating 210 million visits, up from 18 million two years ago. The
Walmart app ranks among the top 3 retail apps in the Google and Apple app stores
every month, and according to comScore, Walmart already has 22 million customers
using its app in store each month.
To gain that kind of scale, Apple would almost have to capture every other retailer in the
U.S. by 2016 and hope for an insane upswing in the usership of Apple Pay.
Which is nearly impossible.
Apple Pay is a service restricted to owners of the most recent two models (more or
less). Walmart Pay was designed somewhat differently: to accept any payment form, on
any type of phone, running any type of operating system, at any Walmart register.
Apple Pay uses NFC, which is available at scant merchant locations and not at all at
Walmart. Walmart uses the Walmart.com app, the cloud and QR codes to simulate an
eCommerce transaction in the store.
Apple Pay is a service

restricted to owners of
the most recent two
models (more or less).
Walmart Pay was
designed somewhat
differently: to accept any
payment form, on any
type of phone, running
any type of operating
system, at any Walmart
register. Apple Pay uses
NFC, which is available at
scant merchant locations
and not at all at Walmart.
Walmart uses the
Walmart.com app, the
cloud and QR codes to
simulate an eCommerce
transaction in the store.
So, its easy, its accessible, its familiar and, now, its going to a retailer that sees 77
percent of the U.S. population on a weekly basis. That is beyond bad news for Apple
and Apple Pay, which is struggling to get even 5 percent of the few consumers who can
use Apple Pay (right merchant, right hardware) to engage with it.
Apple may have been mobiles great white hope in 2015, but it just watched mobile
payments Black Swan swim by, maybe.
PLUG PULLED ON APPLE CABLE BEFORE ANY CORDS

COULD BE CUT
Much of the spring and summer was spent speculating that Apple might be the killing
blow for the much maligned, big, bloated cable packages consumers are forced to buy
if they want the handful of digital channels they are actually interested in.
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And while that day may be coming, it wont be coming from Apple anytime soon. Apple
announced this week that it will suspend its plans to develop a Web-based television
service in favor of focusing on being a platform to which media companies can sell
directly to consumers via the Apple Store and apps.
Reports also indicate that Apple has not entirely given up on the notion of offering a 14or-so channel package for $30$40 a month, but for now, at least, strong resistance
from media companies seems to be sufficient to keep Apple on the sidelines. A main
issue was money, specifically the high costs media firms want for their programming.
Hmmm It is almost as though they were watching the less-than-wonderful
experience the telecom and music industries have had being Apples partner and
decided to take a pass or, at least, requested some very rich compensation for
access to their content.
Apple announced this

week that it will suspend
its plans to develop a
Web-based television
service in favor of
focusing on being a
platform to which media
companies can sell
directly to consumers via
the Apple Store and
apps.
CBS Corp. Chief Executive Officer Les Moonves noted on Tuesday that despite the
pause, he still thinks the service is coming.
But, for now, its not happening, and it seems worth wondering what that will mean for
Apple TV, Apples newly redesigned digital media streaming device that was widely
expected to be the vessel for the coming streaming service. The Apple TV costs more
than either the Roku or the Amazon variation, and both make it easy to tap into digital
subscription streaming.
Some wonder if Apple TV is a device without a purpose.
APPLE WATCH UPDATE

So, good news for those who have been on the fence as to whether or not they want to
surprise someone with an Apple Watch this Christmas. It is increasingly being priced to
sell.
Best Buy has taken $100 off the price of every Apple Watch and Apple Watch Sport in
its online shop. That is actually a better deal than what Best Buy was offering during
Thanksgiving weekend, when the big electronics retailer was taking $100 off higher-end
Apple Watch models but the Sport was only getting a $50 discount.
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And though Best Buy is lowest on sticker price, it is far from the only sale on offer.
Target is also selling the Apple Watch at a discount, though the $100 comes in the form
of a gift card. B&H is also going the gift card route, though it is only giving out $50.
The goods news? Those big cuts in price will probably move a lot of fence-sitters
toward an Apple Watch. But, man, there must have sure been a lot of them to make an
Apple product go down in price by so much right before its first year of Christmas retail.
THE CREEPING ANDROID MENACE

Throughout what has thus far been a very difficult fall for Apple, there has been one
common refrain offered as an explanation of the bright spot.
There is always the iPhone, which was killing it in the sales department.
Between August and

October, the iPhones
smartphone share in the
U.S. fell to 33.6 percent,
compared to the 42.9
percent it was clocking in
this time last year.
Googles Android
operating system was up
9.5 percentage points to
62.8 percent from the
same period a year ago,
Kantar reported.
And that is actually a pretty strong refrain, because as long as the iPhone remains as
dominant as it is, Apples other products dont have to do well immediately.
But about that dominance
The latest report from Kantar Worldpanel indicates that Android has been gradually
eating away at Apples market share in the U.S. and Europe.
Between August and October, the iPhones smartphone share in the U.S. fell to 33.6
percent, compared to the 42.9 percent it was clocking in this time last year.
Googles Android operating system was up 9.5 percentage points to 62.8 percent from
the same period a year ago, Kantar reported.
On the other side of the pond, the picture was also one of loss during the fall months.
The iPhones market share declined 2.2 percent in France, 1.7 percent in Italy and 0.6
percent for the top five nations in Europe (France, Germany, Italy, Spain and the U.K.)
combined. Kantar considers the overall drop in Europe to be minimal, driven primarily
by a deceleration of growth in Great Britain and Germany.
Now, analysts are not overly concerned. There were a variety of high-profile Android
hardware launches this year from Samsung, LG and (shockingly) BlackBerry, while
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Apples upgrade was to an interim S model. Generally, the successes in off-years are,
well, off.
But for a firm as centrally associated with its smartphone as Apple, any dip is notable.
Particularly if the other products in the stable are meeting with a tepid response, like the
watch, or at risk of being knocked out of the market, like Apple Pay.
Cue Elvis.
OTHER READING
Tim Cooks Batting Average
http://www.pymnts.com/news/payment-methods/2015/tim-cooks-batting-average/
Issuers To Apple Pay Just Say No
http://www.pymnts.com/news/2015/issuers-to-apple-pay-just-say-no-2/
New Apple Adoption Numbers
http://www.pymnts.com/news/2015/new-apple-pay-adoption-numbers/
Apples Win Some, Lose Some Week
http://www.pymnts.com/news/2015/apples-win-some-lose-some-week/
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2016 PYMNTS.COM | ALL RIGHTS RESERVED

The dominant question

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THE YEAR OF APPLE PAY

...Despite its massive

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Tim Cook: 2015 The Year Of Apple Pay

Apples move into mobile

Click here to read the

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I think we are in the first

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We believe that [the

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APPLE AND APPLE PAY IN 2014

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THE SLOW MARCH TO ADOPTION

Consumers are stubborn and dont like doing new things

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And those results were widely considered to be a bust at the time.

Apple Pay By The Survey

Click here to read the

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Early-on adoption was

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engagement spike as PayPal transactions per active account increased to 23 and

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APPLE PAY BY THE SURVEY | AS OF APRIL 24, 2015

Our latest survey shows

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... All the researchers are

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ITS NOT EASY GOING GLOBAL

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Apple Pays Business Model Blues

...when the issuing

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The real shocker when

NOW, APPLE PAYS ISSUER FEE IS CONTROVERSIAL

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WHICH IS CONTROVERSIAL POINT NO. 2.

When Apple knocked on

IT PLAYS IN BOSTON (AND NEW YORK, L.A., SAN

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MCX and its members

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Apple keeps Apple Pay

BUT ITS LIKELY TO MISS IN BERLIN

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AND IT LEAVES BEIJING COOL

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Consumers dont have

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THE CHINA QUESTION

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