Retailers need to embrace technology with both arms in order to keep up with the ever-growing e-commerce industry. Source: Shutterstock

Apple Pay struggles to gain foothold in China’s mobile payments industry

THE Chinese mobile payments industry is lousy with riches. In 2016, the total transaction value of the entire country topped CNY38 trillion (US$5.52 trillion), tripling 2015 numbers, according to Beijing’s IResearch outfit.

The market is valued around US$5.5 trillion. In comparison, the US mobile payments market increased 39 percent last year to touch US$112 billion. It’s safe to say China’s the place to be if you’re a mobile payment company.

Though the market is largely monopolized by Alipay and Tencent – the two tech giants control roughly 90 percent of the market share of the mobile-payments industry – and considered mature, the Chinese mobile payments market is vibrant despite expectations that eventually double digit growth in the region will cool down.

We are seeing more and more entrants into the fintech scene, from both traditional financial institutions and non-finance companies, suggesting barriers to entry are still relatively low and the market is still ripe for the reaping.

SEE ALSO: With the rise of fintech, physical bank branches may become a thing of the past

However, the most profitable tech company in the world, Apple Inc., has struggled to make substantial progress in China’s mobile payments scene.

The company launched Apple Pay back in 2014 and it remains the most prolific mobile payments service in Europe and North America, yet it is still largely dwarfed by offerings from Alibaba and Tencent, which have been around for years across all mobile devices.

Apple Pay is more expensive for both customers and merchants than Alipay and WeChat Pay. Source:

Most retailers carry only Alipay or WeChat Pay, as evidenced by reporting by Bloomberg, making it difficult for Apple to gain more recognition despite the backing of the country’s biggest banks and extensive clearing networks.

When the company debuted their payment services, Apple teamed up with China UnionPay Co. who would provide a 10 million machine-strong point-of-sales (POS) network it needed to enable bank card capabilities and provide final mile services. They also engaged a dozen partners to make up in reach what they lacked in local know-how.

Despite what seems like a winning strategy, the simple fact is that using Apple Pay would result in more costly in-app transaction fees for consumers and higher equipment costs for merchants who would have to obtain specialized communication devices to run it.

Alipay and WeChat Pay use codes that can be scanned online or in person, making them the cheaper and simpler option. They also enable users to split bills or send money to each other, making it more appealing than Apple’s simplistic payments system.

Shenzhen-based analyst Marie Sun told Bloomberg: “I don’t think Apple Pay can achieve the same market share as Alipay or WeChat Pay in the foreseeable future. 

The only chance I can think of is if there’s any big security breach happening to Chinese rivals so customers will seek alternatives. Personally, I don’t see any benefits to switching myself.”

Apple Pay is only available on iPhones and was never meant to be anything beyond a sweetener to pull customers. This seemingly indifferent approach to the potential of its payment systems accounts for the dominance of Alipay and WeChat Pay in China.

SEE ALSO: Apple to open two more R&D centers in China, invests over $507m

Apple also has to deal with the proliferation of local Chinese-smartphone makers who have been slowly edging them out over the last three years.

Now, iPhones only make up 9.6 percent of smartphone sales, while Oppo and Vivo have seen their sales in China triple the number of Apple’s in 2016. Without an iPhone, consumers have no access to Apple Pay, and we might now be seeing the decline of Apple in the country which made its fortune.

Despite CEO Tim Cook’s claim he is “very bullish” on China, it’s hard to take him seriously seeing how Apple’s revenue from Greater China has declined 17 percent in the 2015/2016 fiscal year, and is expected to further decline.

Furthermore, the mobile payments market in Asia is only getting more competitive, giving Apple even more headaches.

LG’s new flagship phone, the G6, will come loaded with a Korea-only payments system. Source: Flicker/LG전자

Samsung Pay was an early provider of mobile payments services, and was popular from the beginning.

It used magnetic secure transmission (MST) technology in order to transmit payment information and can be used in tandem with existing card terminals, negating the need for additional POS devices. Samsung also does away with transaction fees Apple Pay charges its users.

South Korea’s LG Electronics just announced it will launch a new mobile payments service in its home country in June.

The LG payment service would be similar to Samsung’s as it operates using MST technology. Like Apple and Samsung, LG will be banking on its payment system as a way to differentiate its flagship device in a saturated smartphone market, as the payment service would only be available on its G6 handset.

LG noted it has no plans as yet to expand into other markets as it would have to contend with foreign credit card service providers. The G6 will be available in North America on April 7 and will be gradually released in other markets, making full use of the delayed release of Samsung’s new flagship phone.

An increasing number of banks are turning to producing fintech products in order to stay relevant, and recently, the wildly popular Line app released the Line Pay service, tapping into its 220 million active daily users across Asia.