FINANCE: Apple Pay Buzzes China Mobile Payments Market

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Bottom line: A strong reception for Apple Pay from consumers, banks and merchants bodes well for the service, which should attract a major audience among iPhone users but won’t pose a major threat to rival services from Alipay and WeChat.

Apple Pay launches in China

The launch of Apple Pay in China is buzzing through the local headlines a day after the roll-out, in a move that looks certain to shake up a stodgy industry dominated by homegrown names like Alipay. The most revealing headlines report on the rush by everyone, from consumers to banks and merchants to jump onto the Apple Pay bandwagon. That reflects the buzz that any major move by Apple (Nasdaq: AAPL) can create in the world’s largest smartphone market.

Local consumers are undoubtedly pleased that Apple chose China for the Asia launch of Apple Pay, selecting their market over more traditional candidates like Japan and South Korea. China is only the fifth global market for Apple Pay, following launches in the US, Canada, Britain and Australia. The pride element at being first in Asia, combined with Apple’s existing premium image here, will draw a big majority of Chinese iPhone and iPad users to try out Apple Pay on their devices.

Apple now controls about 14 percent of the China smartphone market, equating to around 150 million Chinese wireless subscribers who access the mobile Internet using iPhones. Thus signing up just two-thirds of those to Apple Pay would translate to 100 million users of the service, equal to a third of the US population and far bigger than the population of any other developed market.

Apple Pay’s China launch plan has been in the headlines since the middle of last year, and was formally announced by CEO Tim Cook on his China microblog post on the day of the service’s debut. (microblog post) Cook followed with another post later in the day congratulating one of the first Apple Pay customers in China, and I’ll be quite direct and say that neither is particularly exciting, perhaps in line with Cook’s low-key style.

But the Internet headlines tell a far jazzier story, reporting that Apple’s system was overwhelmed by the huge flood of users who tried to sign up for the service on the first day. (Chinese article) One report said the pace was so frenetic that users were trying to sign up  for service at a rate in the tens of thousands every minute.

Bank Scramble

Another report says that Chinese banks are scrambling to sign agreements to support Apple Pay, since iPhone users can only subscribe to the service if their bank has such an agreement. (Chinese article) Apple has initially launched the service with about a dozen local banks, including most of China’s top names. But many smaller regional players are now scrambling to jump on the bandwagon, anticipating big new transaction volumes from the service.

Yet another set of reports details the scramble among merchants to offer their own products and services over Apple Pay. Those names run a wide range, from online travel services provider Ctrip (Nasdaq: CTRP), to retailing giant Carrefour (Paris: CA) and convenience store operator 7-Eleven. Such merchants will easily be able to add Apple Pay to their systems, since the service rides on top of point-of-service (POS) terminals that are already present in most stores. Those terminals are operated by dominant electronic payments processor UnionPay, which is Apple’s main network partner in Apple Pay.

Absent from most of the headlines is the fact that the Apple Pay roll-out represents a major milestone, making Apple the first foreign company to offer domestic electronic payment services in China. Global giants Visa (NYSE: V), MasterCard (NYSE: MA) and PayPal have been vying for years to offer similar services, though none has received a license yet. Apple’s ability to get a license before the others in many ways represents its growing clout in the market, which is now its second largest behind only the US.

One of the big questions making the rounds is how big a threat Apple Pay will pose to Alipay, China’s leader in mobile payment services, and the newer payments service attached to the wildly popular WeChat social networking service.

Neither Chinese service probably needs to worry too much just yet, since 85 percent of Chinese smartphone users still use models powered by Google’s (Nasdaq: GOOG) Android operating system (OS) that doesn’t support Apple Pay. But a rapid adoption of Apple Pay by iPhone users could quickly raise the bar for rivals in China, since Apple products typically provide far better service than others in the market.

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