Caught between an iPhone and Alipay: Will Apple’s gamble on China pay off as Apple Pay reaches mainland tomorrow?

Alibaba’s Alipay and Tencent’s Tenpay dominate the mobile payments market in China, with Alipay accounting for 70 per cent of the mainland market

PUBLISHED : Wednesday, 17 February, 2016, 7:09pm
UPDATED : Friday, 19 February, 2016, 6:37pm

The most ambitious launch to date of Apple’s mobile payment system is expected to start on Thursday in mainland China, where the US technology giant faces an uphill battle against the widely adopted payment platforms of Alibaba Group and Tencent Holdings.

Apple Pay will commence service in the world’s second-biggest economy with the backing of 19 Chinese banks and China UnionPay, which supports mobile payment for its hundred of millions of cardholders and a vast network of merchant partners.

READ MORE: Tencent’s WeChat Wallet lands in Hong Kong, beating Apple Pay as public migrates to mobile payments

News that Apple Pay was slated to go live this week spread fast on Tuesday, following social media posts by representatives of the state-owned Industrial and Commercial Bank of China that stated the date at which the service would become available.

Apple’s spokeswoman in Beijing did not respond to inquiries. No information was shared by the 18 other mainland banks supporting Apple Pay.

The service was initially launched in the United States in October 2014. That was followed by its introduction in Britain, Canada and Australia last year.

Apple also moves ahead of Samsung Electronics in rolling out its mobile payment system with UnionPay in China.

In other markets, Apple Pay is trying to get users to pay with their phones. In China, that behaviour is already commonplace
Michael Yeo, senior market analyst, IDC

Both Apple Pay and Samsung Pay will use UnionPay’s QuickPass technology, which allows mainland consumers to pay for purchases by simply waiving their near-field communications (NFC)-equipped mobile device in front of a QuickPass-enabled payment terminal in stores.

Apple started adopting NFC with the release of its iPhone 6 models in 2014. Union Pay cardholders can add their bank cards to Apple Pay on the iPhone, Apple Watch or iPad.

“In other markets, Apple Pay is trying to get users to pay with their phones. In China, that behaviour is already commonplace,” said Michael Yeo, a senior market analyst at research firm IDC.

“Apple has the issue of trying to distinguish itself from the other mobile payment platforms out there.”

Alibaba’s Alipay and Tencent’s Tenpay dominate the mobile payments market in mainland China, with Alipay accounting for 70 per cent of the market, according to Marbridge Consulting.

Users of Alipay and Tenpay transfer money to friends on their smartphones and pay for purchases in store by having cashiers scan a QR code generated by the digital wallets created with those mobile payment tools.

Tenpay is the same system behind the mobile payment feature of popular mobile-messaging app WeChat, known as Weixin on the mainland. This Weixin Pay service owns about 19 per cent of the mainland market.

“Alipay and Weixin Pay have been very aggressive in capitalising on their user bases to expand their offline payment business in the past few years, which has led China UnionPay to rapidly lose market share in China’s payment transactions,” Jefferies equity analyst Johnny Wong Kin-man said in a report.

“Now UnionPay seems determined to win back lost ground by launching a series of new payment tools, including Apple Pay and Samsung Pay, which will leverage on its vast point-of-sale network in China.”

UnionPay’s efforts with Apple Pay, which only works with Apple’s iOS devices, face tall hurdles in a market dominated by Android smartphone users.

Can Apple Pay sell in China?

“The potential portion of the payments pie is going to be small” for Apple’s NFC devices, according to Yeo.

Data from IDC showed that Apple held a 13.4 per cent market share for smartphones on the mainland last year. Apple’s NFC coverage includes the latest iPhones and iPad models, which means users of earlier-generation iPhones and iPads need to upgrade before they can use Apple Pay.

“I don’t think I’ll use Apple Pay because it only allows me to make payments in stores,” said Celine Zhang, an education consultant based in Beijing.

“I already use Alipay to make payments when I shop so there is no need to switch.”

Eric Li, a bank analyst in Shanghai, said he uses Alipay but is willing to try out Apple Pay since it “will be very compatible with my iPhone”.

According to Jefferies, users who access multiple payment platforms tend to lean toward the ones offering promotions at the time of use. That means the likelihood is high that all mobile payment platforms in China will provide more subsidies to add and retain users.

Yeo said Apple will likely negotiate lower card fees to attract more merchants to join the Apple Pay service.

“If that works out as planned, there should be minimal difference between Apple Pay’s fees and Alipay’s own charges,” he said.