PayPal (NASDAQ:PYPL) could see a new growth avenue with the integration of Apple (NASDAQ:AAPL) Pay’s NFC chip technology, according to Morgan Stanley analysts in a note Tuesday.
According to the bank, although the immediate financial impact may be limited, the strategic benefits could be significant, particularly in improving PayPal’s mobile checkout experience.
Morgan Stanley notes that while the gross profit contribution from NFC transactions powered by Apple is likely to be minimal due to lower economics, the integration is expected to boost PayPal’s online presence.
Analysts explain that this could lead to increased awareness and habituation among users, especially in mobile transactions.
“In-store NFC transactions should build habituation online,” the Morgan Stanley analysts suggest, as customers start using PayPal more seamlessly in-store, which could drive higher usage and awareness online over time.
The opportunity is particularly relevant given the overlap between PayPal and Apple users.
According to Morgan Stanley’s survey work, 38% of PayPal users are iPhone users, and 24% of consumers have both PayPal and an iPhone. This creates a sizable market for PayPal to target as it leverages Apple’s NFC chip for in-store payments.
However, Morgan Stanley highlights that PayPal’s role will likely be as a replacement for Apple Pay in in-store transactions, rather than acting as a merchant processor.
This means the fee PayPal earns from these new Apple device transactions could be around ten basis points, significantly lower than the 3.4% it earns on Branded transactions.
Morgan Stanley stated that despite these challenges, the long-term potential lies in reducing friction in online mobile checkout, particularly if PayPal can integrate Apple’s “double-click” side button feature into its online transactions.
Analysts add that this could “meaningfully improve PayPal’s competitive positioning on mobile,” making it a key player in the mobile payments space as the integration unfolds.
