Apple Pay faces a battle with banks to enter China’s huge mobile payments market
Following hot on the heels of the designed-for-China Apple Watch, the world’s largest public company is expanding its Apple Pay mobile payments system that will put it in direct competition with Chinese tech giants Alibaba and Tencent.
Since its launch in October last year, Apple Pay, the tech giant’s mobile payment and digital wallet service, now accounts for two-thirds of all US mobile payments. Despite this success, adoption of the technology in the US has been slow, and Apple is now attempting to enter the more lucrative Chinese market, which saw more than US$960 billion in payments in 2014.
In February, China Construction Bank began trials of Apple Pay in Yunnan province using modified point-of-service (POS) machines with near-field communication (NFC) technology, according to Century Weekly.
While the Yunnan experiment was not unsuccessful, analysts say that mainland banks may be cautious in approving Apple Pay’s expansion into China.
“Chinese banks may be slower and more cautious in allowing Apple Pay to enter the wider market,” said Guo Tianyong, a professor with the Central Economic and Financial University in Beijing. Guo pointed out that the Yunnan experiment was limited in scope with more controllable risks.
Mobile payment is huge business in China, with the market increasing five-fold in size in the past year, according to iResearch. Chinese state owned credit card issuer UnionPay and Alibaba subsidiary Alipay are both major players, with Tencent quickly catching up thanks to its WeChat mobile payment service.
However, Guo warns that company’s ambitions may be thwarted by regulation.
“It’s hard to say who the authorities will allow to play the game,” he said. “To Chinese bank supervisors, they have to consider the potential risks that a company may bring to the market, it has to be manageable.”
One point in Apple’s favour is the sheer number of iPhone users in China, as well as the increasingly popularity of Apple Pay in the US, said Qi Yu, an IT industry commentator. Qi said sooner or later the People’s Bank of China would approve Apple’s payment system.
It is estimated that there are more than 30 million Chinese iPhone owners, with China amounting for around one tenth of global users.
Qi is a big proponent of mobile payment services, saying he often uses it to buy drinks.
“It’s so convenient. Just shake your iPhone and your drink is there,” he said.
Apple’s reputation could make it an attractive option for risk-averse regulators: “The banks will want to choose the safest system. Apple Pay could be a winner,” Qi said.
Guo, the professor, said that an Apple-UnionPay partnership could be a win-win for both firms, as both face competition from Tencent and Alibaba, as well as the recently announced Line Pay, which is seeking to expand into foreign markets.
“Apple Pay may help UnionPay gain more foreign users and UnionPay can help Apple Pay to merge into Chinese market,” he said.