Photograph by Duane Prokop — Getty Images
By Don Reisinger
December 2, 2015

Apple Pay’s secret to success may center on letting you to send cash to friends.

For over a month, a number of news sites have published articles saying that Apple (AAPL) is working on a way for users of its Apple Pay payment system to send money to each other. The latest report came from Bloomberg on Tuesday.

The service would be similar to peer-to-peer payment services from PayPal and its subsidiary Venmo. Industry giants Facebook (FB) and Google (GOOG) also offer peer-to-peer payments. Peer-to-peer payments can be used among friends to settle up after a night of partying or by parents to send their cash-strapped college kids some funds. The feature is essentially a quick and relatively painless way to send cash.

Apple, however, has been conspicuously absent from this emerging market. Its Apple Pay service lets people use their iPhones and Apple Watches to buy products in brick-and-mortar stores and through mobile apps—but not send money to one another.

Apple did not respond to a request for comment about any plans for peer-to-peer payments.

If and when the company introduces the service, it could face some major costs. In an interview with Fortune on Tuesday, Richard Crone, CEO of Crone Consulting, said that transactions could cost Apple up to $3 each if it doesn’t charge users for them.

But Crone, a digital payment industry expert, argued that Apple may find good reason to swallow those charges. “Peer-to-peer transfers have a viral application, meaning if I send you $50 and you’re not enrolled in Apple Pay, then I’ve essentially funded your signing up for the service,” he said. “It’s a self-funded incentive for encouraging the adoption of Apple Pay.”

Forrester analyst Julie Ask argued that as Apple signs on Apple Pay users through peer-to-peer payments, there will be “more merchants who will want to accept Apple Pay.” Peer-to-peer payments, she said, “creates a network effect.”

The possible financial benefit for Apple could be major. According to a Jefferies analyst report from last year, Apple generates .15% in revenue on all credit card transactions through Apple Pay and half of one cent on debit card transactions. According to Forrester Data, millions of people have at least used Apple Pay once. Of those who haven’t used the service in the last three months, 13% say that they are interested in going back. Add that to the people who could sign up through peer-to-peer payments, and it’s a recipe for financial success, Crone argues.

He says Americans send just $7.5 billion to each other via peer-to-peer payments—a pittance compared to what Apple could generate in active Apple Pay users spending cash.

“That’s dwarfed by the $6.2 trillion spent at physical point-of-sale,” Crone says. “Adding peer-to-peer is all about increasing adoption for the eventual use of Apple Pay for in-store payments.”

But there may be even more upside to Apple introducing peer-to-peer payments and expanding its network. Jack Kent, director of mobile for IHS Technology, said that the company would be getting customers locked into its products, including the iPhone and Apple Watch, or as he put it, “furthering its ecosystem.”

“Being able to integrate transactions with Apple Pay…would be another way to tie users into its ecosystem and drive revenues from device sales,” he says.

Crone added one more potential benefit: owning user information. He estimated that the combined value of knowing what a person is doing on a mobile device and what they’re purchasing is worth $300 per user per year. He based that figure on the revenue companies can generate from ads and discounts delivered to them through their mobile wallets. Still, Apple’s silence on the issue makes it unclear whether the company would use customer data to generate that potential revenue.

“That’s the value of the data to the issuer of the wallet,” he says. “I know where you are, what you bought, and I can interact with you before, during, and after payment.”

In sum, Apple, for the cost of up to $3 per money transfer, can handle significantly more transactions, attract new users, and collect more user data, experts say. But there is still one big issue the company must overcome if it decides to go down that path: PayPal (PYPL).

For years, people have used PayPal to send money to others for everything from settling up at the bar to paying a friend for a fantasy football league. But in recent years, the company has doubled down on the strategy.

Earlier this year, PayPal premiered PayPal.Me, a service that lets users create a unique PayPal ID to make it easier for friends and family to send them money. The importance of peer-to-peer payments to PayPal’s long-term vision was clear in 2013 when the company acquired then-Venmo owner Braintree, a payment-processing company, for $800 million. It has since expanded its services, and in October, said that Venmo would now work at registers in brick-and-mortar stores in an attempt to capture a share of that massive retail market.

PayPal is a formidable foe for Apple in payments. As Crone said, in the realm of peer-to-peer payments, PayPal is “light years ahead” of its competitors. PayPal has 173 million active users. Crone believes that the company has hundreds of millions of users who are inactive but could be “activated” by peer-to-peer payments at any time. That would create an even greater—and profitable—opportunity for PayPal.

“At PayPal, we see a great engagement opportunity with peer-to-peer payments,” PayPal’s vice president of global consumer product and engineering Joanna Lambert told Fortune. “Customers who use our services to pay and get paid back are some of our most engaged and tend to spend more using our services overall.”

In other words, Apple Pay could be in for a serious battle. But the upside is clear: winning the battle over friends sending friends money means raking in massive sums of cash.

For more on mobile transactions, check out the following Fortune video:

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