Apple (NASDAQ:AAPL) said on Wednesday it will open up NFC transactions to third-party developers. NFC, which stands for near field communication, is the short-range wireless technology that enables Apple Pay and Wallet to function.
Starting with iOS 18.1, developers will be able to enable NFC contactless transactions in-app through the Secure Element. This update allows mobile wallets beyond Apple Pay, such as PayPal (NASDAQ:PYPL), to utilize NFC for the first time, potentially gaining a foothold in the point-of-sale (POS) market.
However, analysts at Jefferies believe the move is “unlikely to be a game-changer for PYPL.” This is primarily because unit economics might not be favorable, suggesting that the main advantage could be increased engagement at the POS, potentially driving more branded volume online.
Moreover, they pointed out that consumer habits are hard to change, with Apple Pay already firmly established in the market.
Separately, analysts at Morgan Stanley have reiterated their view that integrating with the Apple Pay ecosystem is the quickest way for PayPal and Venmo to enhance the checkout experience and attract young consumers through habituation.
While they acknowledge that the economics for in-store transactions may be limited, they believe that as customers begin to use PayPal seamlessly in-store, it will gradually increase brand awareness and online usage, particularly on mobile devices.
Analysts estimate that Apple Pay receives around 15 basis points for transactions it facilitates, with most of the merchant fee (around 2-3%) going to the issuing bank, and the rest distributed between the merchant processor and the card network.
Regarding Apple's update, they expect PayPal to essentially replace Apple Pay for in-store transactions without acting as a merchant payment processor. PayPal will likely need to agree to commercial terms with Apple for fees related to using its NFC technology, the firm noted.
“As such, we expect the fee PayPal earns on new Apple-device transactions will be much lower than the ~3% standard take rate it charges for Branded PayPal transactions online,” analysts wrote.
The NFC and SE APIs will be available in the US, Australia, Brazil, Canada, Japan, New Zealand, and the UK, following a similar move made earlier this year in the EU to open up NFC to other digital wallets.