Apple Pay Launches in China
Chinese consumers are used to mobile payments. It’s a $90 billion thanks to Alibaba’s Alipay and Tencent’s Tenpay, who own over 92% of the market. In fact, the entire mobile payments market in China is saturated with local companies, but now, there’s a new player in town: Apple Pay.
Though Apple launched its mobile wallet over a year ago, it hasn’t been widely received in the US. They’ve faced skeptical retailers and banks that are weary of the new revenue system, but, in China, that could all change.
It’s no surprise that Apple is aggressively expanding its payments service to China, a region where Apple has seen sales grow quickly. In the fourth quarter of 2015, Apple’s revenue in China double to $12.5 billion (USD), and Tim Cook revealed that he believed China would eventually be Apple’s top market.
China is the world’s biggest smartphone market. Over 358 million people already use mobile payments, according to the China Internet Network Information Center. So, Apple Pay’s fifth market opens up a unique opportunity for the company, if they can pull it off.
An Ant Financial spokeswoman revealed that Alipay already had over 400 million active users, with 80% on mobile. And Alipay works with both Android and Apple phones, giving it a distinct advantage over Apple’s solely iOS system.
However, Apple’s partners in China could change all that. They have the support of UnionPay and 19 Chinese banks—including the largest bank, ICBC. That means that 80% of China’s credit and debit cards are eligible for Apple Pay, usable at about one-third of all locations that accept those cards.
UnionPay was created by China’s central government and has a monopoly on bankcard payments for domestic lenders. They are also located in more than 400 institutions worldwide with enabled card acceptance in over 150 countries and issuance in more than 40 countries. Their monopoly and support are a huge boon for Apple, and as more Chinese banks rapidly expand into the mobile payments market, it could change the mobile payments game in China.
However, Apple Pay isn’t UnionPay’s only partner. In December 2015, they announced a similar deal with Samsung Pay, and they’re also in talks with domestic smartphone brands such as Xiaomi, Huawei, ZTE, and Lenovo. If Apple wants to succeed early, they’ll need to leverage their partnership quickly.
So, how many Chinese consumers will use Apple Pay? It’s difficult to tell.
Apple doesn’t share their total iPhone users or sales in China. Analysts estimate that when the iPhone 6s was released, Chinese consumers purchased three to four million in the first weekend of sales. In addition, a report from Kantar revealed that iPhones were the most-sold smartphone brand in urban China in 2015 with 27% of the market share. And according to TechPinions, by quarter two of 2016, they expect half of the iPhones in China to be Apple Pay compatible.
It’s a fairly large market, and Apple can count on more than their market share.
Currently, the mobile payments industry is focused entirely online. Alipay and Tenpay connect their services to their mobile apps, as well as shopping and messaging services such as WeChat.
To pay in a shop with Alipay, it’s not as simple as swiping your phone. Instead, users need to open the payment app in their smartphone and then scan a square barcode (QR-Code) with their phone camera. While the codes have been aggressively promoted, and some restaurants in Hangzhou city, Alibaba’s headquarters, prefer to take Alipay over credit cards, the offline pay option isn’t convenient or simple.
The QR-Code system is slow, and has nothing to do with the more popular and simple “near-field communication” (NFC) terminals, which allow users contact-less pay that works like a credit or debit card. In fact, Alipay’s mobile system operates separately from UnionPay and Chinese banks.
Apple has a clear advantage in the offline mobile payments space given the footprint of UnionBay in China as well as their technology. Apple Pay and NFC terminal mobile payments are much more convenient. They only require a user to place their phone over a payment terminal while using their fingerprint for identity confirmation. It’s a one-and-done.
As for what NFC payment terminals mean for Apple Pay? NFC terminals are currently the only option for offline mobile payments in China.
UnionPay owns 20 million payment terminals in China with 15 million merchant partners. Out of these partners, 3.6 million—the same number of mobile payment terminals in the US—already use UnionPay’s NFC service called QuickPass. NFC terminals could also be coming to ATM machines in coming months. The truth is that state-backed initiatives have the edge in China over private companies, which is another boon to Apple.
Already, Apple has stated that some merchants in Chinese locations, including 7-Eleven, KFC, McDonald’s, and Burger King, are already accepting Apple Pay. And the popular shopping app JD.com is expected to add Apple Pay support in the near future.
And on launch, Apple Pay was off to a good start. Nearly 38 million bankcards were already linked to Apple Pay, although the number of users did present some issues. Due to the sheer volume, many users encountered errors while trying to register and use their cards.
If Apple Pay and UnionPay want to beat Alipay offline, they have a long road ahead.