System faces tough homegrown competition: experts
Apple Inc is set to bring its payment services to China in February 2016, eyeing a share of the country's booming mobile payment market, media reports said Wednesday, citing people familiar with the matter.
The company has reached a preliminary agreement with China's clearing network China UnionPay to introduce Apple Pay to China by using UnionPay's point-of-sales (POS) network, but details of the agreement are yet to be finalized, Bloomberg reported on Wednesday.
UnionPay declined to comment when contacted by the Global Times on Wednesday. Efforts to reach a Beijing-based spokeswoman for Apple also failed by press time.
According to a report by the Wall Street Journal on Tuesday, Apple has also struck deals with China's four major State-run banks, including Industrial & Commercial Bank of China and Bank of China. But the news has not yet been confirmed by the four banks, the report said.
Apple registered a firm in the China (Shanghai) Pilot Free Trade Zone in June as a first step toward launching Apple Pay in the country's mobile payment market, which is still growing quickly. China's mobile payment transactions in the third quarter this year soared 194.86 percent year-on-year to 18.17 trillion yuan ($2.85 trillion), according to data released Wednesday by the People's Bank of China, the country's central bank.
Launched in October 2014, Apple Pay is now available in the US, UK, Canada and Australia. Apple Pay enables users to pay for goods or services by tapping their iPhones or Apple Watches against payment terminals, using near-field communication (NFC) technology.
Unlike China's homegrown third-party payment tools, such as Alibaba Group's Alipay and Tencent Holdings' Tenpay, no money is stored in Apple Pay accounts - instead people store their bank card information on their devices. This means that banks and clearing networks can keep track of the transactions, which is a reason why UnionPay is willing to cooperate with Apple Pay, according to Zhang Yi, CEO of Guangzhou-based market consultancy iiMedia Research.
"UnionPay aims to fend off competition from payment tools like Alipay by cooperating with Apple Pay," Zhang told the Global Times Wednesday.
The cooperation with UnionPay would also help Apple Pay's growth in China, but it will be hard for Apple Pay to gain a large share of China's mobile payment market in the short term, as Alipay and Tenpay are already widely accepted among users and businesses, analysts said.
In the third quarter this year, Alipay held a dominant 61.9 percent share of the third-party payment sector, followed by Tenpay with a share of 14.5 percent, according to data from Internet consultancy sootoo.com in October.
Also, NFC technology is not yet widely used in China. For instance, only a small number of POS machines in China are compatible with NFC technology at present, according to Zhang.
However, the popularity of iPhones in China may help Apply Pay to gain ground. In the third quarter, Apple accounted for 12.1 percent of China's smartphone market, ranking third after Xiaomi Technology's 16.4 percent and Huawei's 16.2 percent, according to consultancy IHS Technology in October.
But Li Chao, an analyst at Beijing-based research firm iResearch, told the Global Times Wednesday that Apple Pay may see limited progress in China's less developed areas as users there are more likely to use smartphones with the Android operating system, as opposed to Apple's iOS.
"Local payment systems like Alipay would enjoy more popularity in such areas," Li noted.
The fees charged by Apple Pay could be another factor that may hinder its growth in China, analysts said. In the US, Apple Pay charges 0.15 percent of the value of each credit card transaction via its system, which comes out of the 2 percent fee paid by merchants, media reports said. But in China, the fee paid by some merchants is as low as 0.38 percent.
