A bite of China’s mobile payments pie – now Apple Pay wants it too
Can Apple Pay take on Alipay and Tenpay in China? It’s going to be a herculean task, but Apple is optimistic going by its current level of growth in this market.
ChinaTravelNews, Ritesh Gupta - How effective can Apply Pay turn out to be in China? The response to Apple’s latest foray has been a mixed one going by the initial introspection.
A a section of the industry has complemented Apple’s move in China, especially considering the fact that the likes of Visa are still “waiting for final regulations” and gearing up to make a formal application for their businesses. Apple has found a way by striking an alliance with the state-owned bankcard association, China UnionPay. As a bankcard network, China UnionPay operates China’s national inter-bank clearing and settlement system.
Also, it is being pointed out that Apple Pay would find it tough to break the stranglehold of Alibaba and Tencent here.
According to iResearch, China 3rd party mobile payment GMV touched 2.42 trillion Yuan in Q3 last year, going up by 5.4% from Q2 and 64.3% from Q3 2014.
Alipay’s share stood at 69.9% while Tenpay garnered 19.2% of total China 3rd party mobile payment market in Q3 2015.
The prowess of Alipay is huge at this juncture.
Let’s go back a bit.
The Singles Day shopping festival, which originated on Tmall in 2009, is termed as biggest shopping day in the world. On November 11 last year, the Alibaba Group attracted over 115 million buyers and in total RMB91.2 billion or US$14 billion in GMV was settled through Alipay on its platforms.
The infrastructure facilitated around 140,000 peak transactions processed per second.
The way Chinese technology companies have crafted their mobile-first strategies, spanning across e-commerce, communication and payments, it wouldn’t be easy for any new player to breakthrough.
Also, these companies are data-savvy, and are deep into analysing the buying behavior and intent of the users. If we assess the active user base that Alibaba has in its armoury, with over 400 million Chinese consumers transacting on its platforms in 2015, getting closer to knowing the intent of consumers is a huge advantage.
In a recent interview with ChinaTravelNews.com, Sherri Wu, Chief Strategy Officer, Alitrip, a part of the Alibaba Group did mention that when users come to the Alibaba ecosystem, they already have the purchase intention and security of payment. And this is being leveraged across a gamut of product categories, including travel. As shared with us, the group has over 350 million active annual purchasers in its Tmall system and more than 400 million real name registered users in Alipay.
China is a complex market with myriad regulatory payment issues, acknowledged Vivek Bhatnagar, vice president of pre-sales and solution architecture, CellPoint Mobile.
“At the same time, it’s a market that is much too big to ignore. With Apple Pay, Apple has paved the wave for other eWallets, such as Android Pay, VISA Checkout, MasterPass and Amex Express Checkout, all of which will join the race,” said Bhatnagar.
As for whether Apple Pay gains traction or not in China, it would depend upon the number and types of issuers that support Apple Pay, and the number of high-quality merchants that sign up for Apple Pay services, says Bhatnagar.
“(Three factors are key to the Chinese consumer market) First is issuer support, marked by the number of issuing banks and local acquirers that support Apple Pay. The breadth and depth of issuer support will have an impact on customer adoption of Apple Pay as a payment method, and adoption will impact both in-store sales and in-app sales,” emphasised Bhatnagar. “Merchant support is also important, because any payment method is only as good as the number of merchants that offer it. The more broadly it's offered, the more popular it becomes. Also important is the profile of the Chinese consumer market – which is highly skewed to young consumers. This profile actually helps Apple Pay, because younger consumers are much more willing to embrace the move toward a cashless society.”
He also pointed out that Apple has started on a strong note.
“The Apple Pay-China UnionPay alliance is akin to JCB (Japan), Ideal (Netherlands) and Dankort (Denmark) – all of which are extremely well-ingrained in their respective markets. Without this local scheme in place, Apple Pay would face major on-boarding issues with customers in China,” said Bhatnagar. He added that more options means more commerce, and even though China is a competitive market, Apple Pay would lend a new dimension considering propensity to spend of Apple customers. “This is fantastic news for the travel sector, because it creates one more pathway to purchase – and a high-value pathway at that. Apple Pay users consistently spend more than $400 in in-app transactions – a figure that should be music to the ears of both airlines and the hospitality sectors as they seek to sell more seats and hotel rooms, respectively.”
Apple Pay will come into play over its ability to push mobile commerce. “Major retailers are currently starting to investigate and move toward an app-only environment, and some are even abandoning the traditional desktop website. Apple Pay and other emerging payments technologies will accelerate this trend,” said Bhatnagar.
Apple’s growth in China
To its credit, Apple’s four software platforms — iOS, OS X, watchOS and tvOS — provide seamless experiences across all Apple devices.
Apple sold 74.8 million iPhones in the December quarter, an all-time high. Also, in its Q1 2016 results the company shared that 66% of Apple’s revenue is now generated from the outside the U. S. During the earnings call for the same quarter, the company referring to Greater China, shared that its revenue rose by 14% year-over-year and 47% sequentially to an all-time record of $18.4 billion.
It is being pointed out that existing players can afford to indulge in a price war in an effort to combat the entry of Apple Pay by doing away with charging any payment-related fees.
Also, it needs to be noted that UnionPay has already launched QuickPass in Beijing in cooperation with over 20 commercial banks. The offering supports contactless payment technologies focused on NFC, HCE or Host Card Emulation, TSM and Token technologies.
It is being pointed out that in China, QR codes are used by a wider market because more phones can read them compared to phones that can read NFC tags. So isn’t this a big challenge for Apple Pay?
Bhatnagar says it’s “going to minor bump for in-store transactions”. “Keep in mind that most high-end retailers have NFC-enabled payment terminals, and almost all mobile point-of-sale terminals are NFC-compliant, provided by acquirers on a monthly fee schedule that is similar to what merchants are accustomed to paying,” concluded Bhatnagar.