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 "We think China could be our largest Apple Pay market," Jennifer
Bailey, vice president of Apple Pay, told Reuters in an interview in
Beijing.
In an early boost, China's biggest lender, Industrial and Commercial
Bank of China Ltd (ICBC), was among the banks that said earlier this
week that customers would be able to use Apple Pay from Thursday.
However, Apple Pay has not had an easy ride so far in China, the
fifth country to get the service. Even in its U.S. home market,
Apple has faced skeptical retailers in its effort to develop a new
revenue stream.
China is not likely to prove any easier to crack.
"People switch applications for significantly better experiences, it
(Apple) has to deliver not just a little bit more secure, or a
little bit easier to use," said Mark Natkin, founder of Marbridge
Consulting.
Greater China is Apple's second-largest market by revenue, and the
world's biggest smartphone market. By the end of 2015, 358 million
people, more than the U.S. population, had already taken to buying
goods and services by mobile phone, according to the China Internet
Network Information Center.
The vast majority are using payment services from China's two
biggest Internet companies that have existed for years.
Social networking and gaming firm Tencent Holdings Ltd operates
WeChat Payment, and e-commerce company Alibaba Group Holding Ltd,
through its Internet finance affiliate Ant Financial Services Group,
runs Alipay.
"With 100 percent saturation of local payment systems, no one in
China is clamoring for Apple Pay," said one retailer who declined to
be named for fear of harming business prospects. "Today, everyone
has a local payment option on their phone, so Apple Pay is a
solution in need of a problem."
BANKS ON BOARD
Deeply ingrained in China's Internet, domestic payment services
cover much more than ride hailing, food delivery and online
shopping. Users can invest in wealth management funds, pay utility
bills, send gifts to friends and give to charity.
An Ant Financial spokeswoman said Alipay has over 400 million active
users, with 80 percent on mobile.
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"Alipay is an app for both (Google software) Android and (Apple's)
iOS system and has little requirements for the make and model of the
mobile phone," she said.
The U.S. firm has 19 of China's biggest lenders as partners. That
means 80 percent of China's credit and debit cards are eligible for
Apple Pay, usable at about one-third of all locations that accept
those cards, Apple's Bailey said.
Apple's approach is to not compete with banks and UnionPay, said
Bailey.
"China UnionPay and our Apple Pay solution has a huge advantage,
given the footprint of China UnionPay," she said. "Its merchant
acceptance network far exceeds what any of the other mobile
platforms have today."
Though banks have been rivals elsewhere, industry watchers say this
tactic may offer Apple its best prospect.
Zhao Longkai, associate professor of finance at the Peking
University Guanghua School of Management, said China's banks, and
state-backed payment card monopoly China UnionPay, have rankled at
the popularity of alternative mobile systems associated with Alibaba
and Tencent.
"The entry of Apple Pay has the potential to change the strategic
landscape," said Zhao. "UnionPay now has an opportunity to bring a
new alliance to defend the market that it is losing to Tencent or
Alibaba - Apple Pay first needs to figure out a way to win over
Chinese customers."
(Additional reporting by Kalum Chen in HONG KONG and Beijing
Newsroom; Editing by Kenneth Maxwell and Alexander Smith)
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