PayPal and Apple Pay Integration

PayPal (NASDAQ:PYPL) could tap into a new growth avenue through the integration of Apple (NASDAQ:AAPL) Pay’s NFC chip technology, according to analysts from Morgan Stanley in a note released on Tuesday.

While the immediate financial impact may be limited, the strategic benefits could be substantial, especially in enhancing PayPal’s mobile checkout experience. Morgan Stanley suggests that although the gross profit contribution from NFC transactions facilitated by Apple is expected to be low due to reduced economics, the integration could strengthen PayPal’s online presence.

The analysts elaborate that this shift could foster increased user awareness and habitual use, particularly in mobile transactions. They assert, “In-store NFC transactions should build habituation online,” suggesting that as customers use PayPal more seamlessly in physical stores, it could lead to heightened online usage and awareness over time.

This opportunity is particularly relevant given the overlap between PayPal and Apple users. Morgan Stanley’s survey indicated that 38% of PayPal users own iPhones, and 24% of consumers have both PayPal and an iPhone, presenting a significant market for PayPal as it utilizes Apple’s NFC chip for in-store payments.

However, Morgan Stanley cautions that PayPal’s role will likely be more of a substitute for Apple Pay in in-store transactions rather than serving as a merchant processor. This implies that the fees PayPal earns from these new transactions on Apple devices could be about ten basis points, which is markedly lower than the 3.4% it typically earns on branded transactions.

Despite these hurdles, analysts emphasize that the long-term potential lies in streamlining online mobile checkout, particularly if PayPal can leverage Apple’s “double-click” side button feature in its online transactions. They suggest that this could significantly enhance PayPal’s competitive position in the mobile payments arena as the integration development progresses.