FINANCE: Apple, WeChat Heat Up Electronic Payments

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Bottom line: Apple Pay’s upcoming China launch and WeChat’s roll-out of fees for its cash-providing service reflect growing competition in the e-payments market, which will result in a long and costly battle among major players for market share. 

Apple, WeChat in new e-payments moves

The rapidly heating China market for electronic payments is in a couple of top headlines today, led by highly anticipated news that Apple (Nasdaq: AAPL) will launch its Apple Pay service in China later this week. At the same time, separate media reports say that Internet giant Tencent (HKEx: 700) is taking a major step towards monetizing the e-payments service attached to its wildly popular WeChat instant messaging service.

The pair of headlines underscore just how much potential both domestic and foreign companies see in the China electronic payments market, which is growing rapidly as consumers and companies do more of their buying online. Some new data nicely summarizes the market, with leading e-payments firm UnionPay reporting that transactions processed over its network soared 30 percent to 312 billion yuan ($48 billion) over the week-long Lunar New Year holiday last week.

Let’s begin with the Apple Pay news, which first jumped into the headlines last year after CEO Tim Cook said he was aiming to bring the iPhone-linked service to China in the near term. Earlier reports had indicated Apple was planning to launch the service before the Lunar New Year, but clearly that didn’t happen, most likely due to technical delays.

Now media are reporting that Apple Pay will launch in China on Thursday, citing a posting on the microblog account of the CGB Bank, one of the service’s banking partners based in the southern city of Guangzhou. (Chinese article) This particular news is quite incremental, since Apple Pay’s China launch plan has been widely reported before. Still, it’s quite an accomplishment that Apple is becoming the first foreign company to offer domestic e-payment services in China, beating out financial rivals Visa (NYSE: V), MasterCard (NYSE: MA) and Paypal.

The Apple news comes the same day that data tracking firm IDC revealed that Apple was China’s second best-selling smartphone brand in the fourth quarter with about 15 percent of the market. That’s critical to this story, since Apple Pay is closely tied to iPhones, and thus the service’s success will depend on strong iPhone penetration in China. I do expect the service should do well despite strong competition, since iPhone users are likely to embrace Apple Pay as a premium service that sets them apart from rivals available to everyone else.

Charging Fees

Next there’s the WeChat news, which is also quite incremental and says the company will start charging fees of 0.1 percent of each transaction for one of the main cash-offering services tied to the platform. (Chinese article) WeChat is being very careful with the announcement, adding it will subsidize the first 1,000 yuan ($153) worth of fees for all users after the change. That’s a clear attempt not to frighten away users who were used to getting the service for free.

WeChat is announcing the news after a record-breaking Lunar New Year promotion that saw its subscribers exchange a staggering 8.08 billion yuan ($1.2 billion) worth of hongbao, or money-filled virtual red envelopes, over the platform on Lunar New Year’s Eve. (previous post) I noted at the time that Tencent had to process those millions of tiny transactions for free, and probably incurred big losses. Accordingly, it’s trying to take some tentative steps to actually earn money from the massive social networking platform it has painstakingly built up over the last few years.

This rapid piling into the market by major players looks quite typical for China, and is almost certain to result in yet another boom-bust cycle that’s also quite typical for the market. The big difference this time is that most of the players are big names with huge resources to spend on their China bets. That means the upcoming war for a piece of China’s e-payments sector is likely to be quite long and costly.

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