What Apple's pact with Stripe means for the point of sale

Apple's long-anticipated foray into contactless payment acceptance will soon go live with Stripe as an initial distribution partner, dramatically expanding the market for downloadable checkout technology.

The new system, which the Cupertino, California tech giant announced Tuesday, will allow consumers to make payments by tapping a contactless card or mobile wallet against a merchant's iPhone. The merchant would still require a payment acceptance app of some kind, but would no longer need a plug-in or Bluetooth card reader.

Apple is working with Stripe on its initial rollout, and could partner with more merchant acquirers and payment facilitators rather than strike deals directly with merchants, but that might not always be the case. Apple Pay, which launched in 2014, originally needed consumers to provide their own payment cards before the tech giant added its own Apple Card as an option in 2019 in partnership with Goldman Sachs.

Apple's long-term goals for this technology are still unclear, said Don Apgar, director of the merchant services practice at Mercator Advisory Group in Indianapolis.

"If we believe that Apple will stay the course with a similar strategy as what they have employed for Apple Pay, it doesn't want to be in financial services and will allow existing banks and other providers of merchant accounts to link to its card acceptance technology," Apgar said. "If we believe that Apple is considering a massive strategy shift that brings them into business financial services, then they could be gearing up to make a run at Square and others."

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Apple could see more value in being a partner to merchant acquirers and terminal makers than in trying to displace them, said Rick Oglesby, president of AZ Payments Group in Phoenix.

"Apple's more likely to partner with, and tax, existing merchant service providers more than launch an aggressive strategy of displacing them," Oglesby said.

Stripe is the first announced merchant service provider to support Tap to Pay on iPhone, enabling the service for business customers and the Shopify Point of Sale app this spring. Tap to Pay on iPhone will also be supported for third parties' software development kits in an pending iOS software beta. The technology works on the iPhone XS series of devices, released in 2018, and newer models.

Apple's release only mentioned iPhones, though the technology could theoretically be applied to other Apple devices. The iPad, for example, could serve as an in-store payment terminal, according to 9to5mac, a blog that follows Apple. The 2022 line of iPads is expected to be announced in March or April, consistent with Apple's yearly upgrade cycle.

Apple did not provide comment from an executive by deadline. Stripe referred questions to Apple's press release from Apple and social media posts from founders John Collison and Patrick Collison.

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Apple does not appear to be acting as a direct merchant acquirer, with Stripe playing that role in the initial deployment. "In collaboration with payment platforms, app developers and payment networks, we're making it easier than ever for businesses of all sizes, from solopreneurs to large retailers, to seamlessly accept contactless payments," said Jennifer Bailey, vice president of Apple Pay and Apple Wallet, in a release.

Apple Pay has about 507 million users globally, and controls about 92% of the U.S. mobile wallet payments market, according to Statista. Apple reports 90% of merchants in the U.S. accept Apple Pay (though one of the largest merchants, Walmart, does not). And Stripe works with millions of merchants globally.

"This increases accessibility and therefore could expand the number of merchants accepting card payments," said Jordan McKee, principal analyst for digital payments at S&P Global Market Intelligence in Bethesda, Maryland.

"What’s unclear is if Apple is charging processors like Stripe a per-transaction fee for each payment enabled by Tap to Pay on iPhone, akin to the fee card issuers must pay for Apple Pay transactions," McKee said. "It is quite plausible that it is."

For Apple, this launch is in part intended to increase utilization of Apple Pay, McKee said, adding Stripe, which has largely built its business by enabling merchants to tap e-commerce sales, could move deeper into card-present commerce in stores.

"While other processor partnerships are likely to be announced in the future, Stripe benefits from a first-mover advantage, which could allow it to win business away from Square and PayPal in the near term," McKee said.

Apple has been developing contactless acceptance technology for at least the past two years. Its launch of Tap to Pay on iPhonehas been rumored for weeks, and Apple in 2020 acquired Mobeewave, a Montreal-based company that builds technology that turns iPhones into point of sale devices.

"Apple's announcement is a confirmation that we're not crazy to be working on payment software," said Sam Shawki, CEO of MagicCube, which has been working to deploy contactless technology for merchants over the past several years. Apple's Tap to Pay on iPhone can exist alongside traditional point of sale terminals but could also become a primary payment acceptance method, boosting other contactless options at the same time, Shawki said.

While Apple devices aren't universally used and may be too expensive for merchants in some markets, the Apple announcement creates more momentum for "downloadable" payment acceptance from Android or other operating systems.

"This means cloud-based tech is coming for payments," said Shawki. "People like to say this announcement is about Apple versus Square. But it's really about software versus hardware."