What Apple Pay's Journey To Safari Means For PayPal, Visa And Mastercard

At its annual developer conference, Apple Inc. AAPL announced its much awaited “Apple Pay for Safari.” Bernstein’s Lisa D. Ellis maintained an Outperform rating on the company, with a price target of $135.

Until now, Apple Pay had only been available for iPhones and iPads, in-app and in-store.

“In addition, Apple announced that Apple Pay will be available to developers inside the iMessage Apps developer toolkit, likely paving the way for an iMessage-based P2P payment service, as well as embedded 'buy now' capabilities in iMessage,” Ellis mentioned.

How It Impacts PayPal

Ellis believes that while Apple’s announcement had widely been expected, it seems to have been the primary driver of the recent weakness seen by Paypal Holdings Inc PYPL, with the stock declining 9 percent from its highs on May 10.

The analyst maintained a Market Perform rating on PayPal, with a price target of $43.

PayPal’s shares declined 1 percent after Monday's announcement, in-line with the overall market performance.

However, Ellis believes “the fears regarding the impact of Apple Pay on PayPal are overblown, and view these pullbacks on competitive fears as offering a more attractive entry point into PayPal.”

Although PayPal’s Express Checkout button franchise is expected to eventually face competitive pressures, the analyst believes such pressure is still about 3-5 years away.

“Given PayPal's enormous, it will take time for any new entrant (including Apple Pay) to make headway against PayPal,” the analyst stated.

Impact On Visa & MasterCard

Ellis pointed out that the extension of Apple Pay to Safari will offer Apple access to 40 percent of mobile payments made via mobile web, while capturing 6-8 percent of total payments made via Mac or desktop.

The analyst believes Apple’s announcement would have a modestly positive impact on Visa Inc V and Mastercard Inc MA.

Ellis maintained an Outperform rating and price target of $97 on Visa, with an Outperform rating and price target of $110 on MasterCard.

According to the Bernstein report, “Apple continues to show no visible intent to attempt to disrupt Visa and MasterCard; to the contrary, they are close partners in Apple Pay, and Apple Pay is truly a 'win-win' for both sides.”

Ellis explained that Apple Pay’s extension for Safari would increase the attractiveness of and loyalty to Apple’s ecosystem, driving app downloads and handset sales.

For Visa and MasterCard, it's expected to drive growth in payment volumes via cash to card conversion, since Apple Pay is card only, while being the “flagship deployment of the networks' value-added token services.”