Apple (AAPL) launched Apple Card in the US on August 20, 2019, for use by Apple Pay users. Apple Card doesn’t carry any transaction fees and offers a low annual percentage rate compared to traditional credit cards. As a result, digital payment solutions like PayPal’s (PYPL) Venmo are under increasing pressure to innovate. Just a week before Apple Card’s launch, Venmo began supporting instant cash transfers to bank accounts for its US-based users.
Paypal’s Venmo and the expanding digital payments sector
The digital payments sector is growing rapidly. According to Mordor Intelligence, the sector should expand at a compound annual growth rate of 13.7% between 2019 and 2024. Mordor Intelligence’s report notes, “The market studied is expected to flourish, owing to the robust proliferation of the internet. The internet penetration rate has been recording a healthy growth over the past few years, and is expected to continue traversing the same trajectory, owing to increasing investments by internet service providers.”
In our view, competition for increasing shares of this expanding market should heat up going forward.
PayPal’s Venmo is slightly ahead of the competition, especially after enabling instant cash transfers to linked bank accounts. For a fee, users can access instant cash from their linked bank accounts to their Venmo accounts. On August 14, we detailed this development in PayPal’s Venmo Users Now Can Make Instant Cash Transfers, noting that the instant cash feature could help Venmo boost its profits.
Apple Card’s launch is a key effort by Apple Pay to garner additional market share despite Apple being the dominant digital wallet among debit card users. An October 2018 study by Auriemma Group notes, “Apple Pay makes up 77% of mobile payments among debit card users.”
Apple Card is a collaboration among Apple Pay, Mastercard, and Goldman Sachs. While launching Apple Card, Apple noted, “Built on simplicity, transparency and privacy, Apple Card has no fees, encourages customers to pay less interest, offers an easy-to-understand view of spending and provides a new level of privacy and security. ”
Xoom spearheading PayPal’s diversification strategy
Apple Pay is not the only competition that PayPal’s Venmo—and PayPal in general—is facing. Another competitor, Zelle Network, reported a larger transaction volume in Q2 2019 than Venmo. During the quarter, Zelle Network recorded $44 billion in transfer volume compared to Venmo’s $24 billion.
In recognition of this competitive threat, PayPal launched Xoom to take on the global remittances market. On July 15, PayPal unveiled Xoom in Europe, covering 32 markets. With this solution, the company noted that users can “quickly send money, pay bills or top up phones to more than 130 markets internationally.”
From our perspective, taking on global remittances giants like Western Union and MoneyGram is a significant step by PayPal toward business diversification. Also, this service expansion helps the company take on its competition in the digital payments market. As a result, the company can leverage its clout in the digital payments space to earn revenue and help it compete against Apple Pay and Zelle Network.
The race between PayPal’s Venmo and Apple Pay comes down to strategy. In the meantime, Venmo can benefit from its instant cash transfer capability.
Plus, Apple Card is expected to help Apple Pay garner more customers due to the convenience and low cost. On August 26, NBC News noted that Apple Pay users who use Apple Card can access rewards such as 3% cashback on “purchases made directly with Apple,” as well as “purchases made with Uber and Uber Eats.” Consumers can earn 2% cashback when making other purchases via Apple Pay.