NEWS ANALYSIS: Why Apple May Be Planning To Launch a P2P Payments Service

Is Apple Inc. laying the groundwork for an application that would let individuals pay each other electronically? Citing “people familiar with the matter,” The Wall Street Journal reported Thursday that the tech kingpin is doing just that, and has already started talking to a handful of major banks.

If the report is true, the move would presumably add a wholly new payments service to the 1-year-old Apple Pay service and throw Apple into competition with banking consortia, transaction processors, and rival West Coast tech giants already vying for a piece of a mobile and online P2P market valued at roughly $600 billion in transaction volume, according to Boston-based researcher Aite Group.

Time will tell if Apple has P2P in its sights—and if it does, whether the new application will even be part of Apple Pay. Publicly, of course, Apple is keeping mum about the matter. Contacted by Digital Transactions News, the company refused to comment, except to say it has not confirmed the WSJ’s report.

Similarly, JPMorganChase & Co. refuses to comment on the story. Chase is one of four big banks the paper cited by name as talking to Apple about the service. The other three are Capital One Financial Corp., Wells Fargo & Co., and U.S. Bancorp.

Setting aside for a moment whether Apple really is trying to develop a P2P service, the WSJ report provokes another question: why might it be doing so?

At least part of the answer lies in the potential attractiveness of the market for electronic payments between individuals. If an easy-to-use (in the Apple tradition) P2P app could be added to the Apple Pay wallet, it could boost Apple Pay usage and make the iPhone line an even bigger seller.

The reason is that P2P using online or mobile means is rapidly gaining ground among consumers. The number of U.S. adults who have performed at least one mobile person-to-person payment in the past 12 months has reached 69 million, up 30% from 53 million last year and a 73% jump from 40 million in 2013, according to a report released last month by Javelin Strategy and Research, a Pleasanton, Calif.-based payments-research firm.

Javelin forecasts that number will hit 82 million next year and reach 126 million by 2020, almost a 180% rise from the current level.

Others have noticed the same sort of potential, which is why Google Inc. refashioned its Google Wallet as a P2P service, Facebook Inc. added P2P to its Messenger app, Square Inc. added its Square Cash product, and PayPal Holdings Inc. has touted its Venmo service.

Indeed, Venmo serves as a useful model for Apple because its huge popularity among college students and Millennials stems as much from its social-networking feature as from its payment transfers. Venmo (and Facebook) recognize payments are an intrinsically social act.

Of course, nobody makes any money on providing P2P transfers, which are almost universally free to users except when they access a credit card to fund them. That’s the reason PayPal is planning to add merchant payments to Venmo, which will allow the service to reap merchant fees.

But that’s beside the point for Apple. Instead, Apple is likely looking for ways to jolt Apple Pay adoption and usage by giving users another reason to load and tap into the app.

Apple doesn’t release numbers on Apple Pay usage or adoption, but recent independent research has been a bit less than sunny. For example, Rhinebeck, N.Y.-based Phoenix Marketing International late last month released results showing adoption stood at 14% of all credit card holders one year after Apple Pay’s launch. But adoption after only the first four months had already soared to 11%, indicating a severe slowdown in consumer takeup.

Phoenix found adoption rates are much higher, though, among Millennial (ages 18-34) and Gen X (35-50) consumers. Indeed, these two demographic groups now account for 92% of Apple Pay users, Phoenix says, indicating a nice match-up with the groups most likely to respond to a Venmo-like P2P app layered on top of Apple Pay.

And making Apple Pay more attractive makes iPhones even more sellable, which is precisely not beside the point for Apple.