Apple‘s (AAPL) potential move into the market for electronic payments at retail point of sale may already be upsetting the, uh, apple cart for payment processors, according to a note today from Credit Suisse‘s Moshe Orenbuch, who follows shares of American Express (AXP) and who has an Underperform rating on that stock.
Writes Orenbuch, at the outset, an Apple entry will probably be just a “ripple” rather than a “wave” for traditional payments firms.
However, “Longer-term, a successful Apple payment system roll-out would in our view most likely disrupt the interchange revenue stream earned by card issuing banks and 3-party providers such as AXP, as merchants clamor for lower fees given the rise of fraud combating technologies.”
Notes Orenbuch, Apple’s negotiating lower fees on transactions:
Reports suggest that five of the six credit card issuers in our coverage universe (the largest issuers of V, MA and AXP) have agreed to lower discount rates by 15-25 bps (and likely incur other costs as well) to be included in AAPL’s digital wallet. While AAPL may assume some of the increased fraud risk due to “Card Not Present,” we believe the fear of being “left out” of a payment system via the iPhone and iWatch is a more compelling driver to lower rates.
He thinks that could set up a situation where American Express may have to negotiate with other parties:
Although an agreement with AAPL may be a “special situation” given its size and influence, we believe more merchants and merchant aggregators may begin demanding concessions by AXP on its discount rate. We would note that 15 bps of discount rate pressure on the US business would represent $0.60 per share in 2015 (more than 10% of 2015 EPS), unless offset by lowering of rewards.
American Express shares today are down 53 cents, or 0.6%, at $89.08. Apple stock is off 17 cents at $98.80.
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