Apple Pay’s potential success may be a key development in mobile payments’ long-awaited and debated prospects, given Apple’s history as a game-changer, its network advantages and help from networks’ push for chip technology adoption.

1. Payments industry watches for
inflections in mobile, credit
Bloomberg Intelligence
Alison Williams, Senior Analyst

2. Apple Pay’s potential success may be a key development in
mobile payments’ long-awaited and debated prospects, given
Apple’s history as a game-changer, its network advantages and
help from networks’ push for chip technology adoption.
The spinoff of PayPal, also much anticipated, may have competitive
implications. For card issuers, historically low credit metrics and a
pickup in loan growth indicate a potential inflection point, though
further U.S. employment gains may limit cost increases.

3. Impact: Mobile payments will likely be less meaningful to Apple
than PayPal, the payments business being spun off by EBay.
Leading networks Visa, MasterCard, American Express and
Discover, as well as top card issuers are also affected by industry
trends

4. PayPal spinoff, Apple Pay are key in payments as
mobile develops

5. Apple Pay has the potential to accelerate growth in the emerging
mobile-payments market. Apple’s culture of filling a need
customers didn’t know they had offers promise to spur mobile-
payments adoption, while an Apple failure may make the
strongest case yet against the opportunity.
Adoption of EMV card chip technology may aid mobile
penetration. The spinoff of PayPal from EBay may allow it to better
capitalize on the evolving payments landscape.

6. Benign credit may support near-term credit card issuer profits

7. Low credit costs have been a card profitability driver for issuers
since the crisis. Delinquencies in 1Q15 are at their lowest level
since the Federal Reserve tracking began in 1Q91. Employment is a
key driver, and further improvement should help contain costs.
Modest industry growth in recent years should also limit increases,
as costs tend to follow growth with a delay. Improving loan growth
lowers credit ratios, though it adds to costs through reserve
building. Underwriting quality is key to watch.

8. Impact: American Express and Discover have the highest credit
card concentration among top lenders. Capital One, Citigroup
and JPMorgan have relatively higher consumer exposure among
bank peers, driven by relatively higher credit card concentration.

9. EMV card technology may increase 2015 costs,
improve long-term profit

10. Costs of implementing more-secure EMV chips may add to U.S.
card issuers’ 2015 expenses, though lower fraud costs could
support profits. U.S. credit card fraud cost the industry $7 billion
in 2014, a 50% increase since 2011, according to Aite Group
estimates, with issuers bearing most of the related expenses.
An indirect negative is lower potential payment volumes as card
fraud may deter consumer use. Propensity to use cards may
improve if fraud incidence is lowered, supporting higher volume
and related revenue.

11. Impact: Bank of America, Wells Fargo, JPMorgan, Citigroup, Capital
One, American Express and Discover Financial are among issuers
offering chip cards, though penetration is likely to increase across
portfolios. Increased adoption should reduce industry fraud costs.

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