- Apple plans to launch Apple Pay in China in February of 2016.
- Apple Pay has endured a tough first year in its U.S. home turf.
- Will China prove to be an easier hunting ground for the service?
Apple (NASDAQ:AAPL) mobile payments service Apple Pay was launched with much fanfare, with chief executive Tim Cook saying in January this year that the service was off to a great start. But one year later, all indications are that Apple Pay’s first year in service has been anything but great. Although there are no hard figures available, the general consensus is that Apple Pay has been plagued by poor adoption. A survey conducted mid-year by Pymnts.com and InfoScout found that only 15% of consumers who were eligible to use Apple Pay (owners of iPhone 6 and iPhone 6 Plus) had tried the service, which they worked out to just 3 million -3.6 million people in the U.S, or about 1% of the population. It’s possible that adoption has improved somewhat with the launch of iPhone 6S, but those early figures certainly don’t appear very encouraging.
Apple Pay, however, is not the only mobile payment service to suffer this fate since Google Wallet fared even worse. The biggest problem why Apple Pay and other mobile payment services have been facing a tough crowd in the U.S. is because traditional payment services such as credit cards and cash have worked reasonably well for a long time, and people just don’t have a strong enough incentive to try out something different. In the case of Apple Pay, apparently many consumers still don’t understand how the service works. The fact that many retail outlets do not accept the service or are not NFC-enabled doesn’t make things any easier.
Now Apple is bringing the service to its second-biggest market--China. Apple has already launched in Europe, and more recently in Australia. But it’s not been smooth sailing there either. A recent report said that Australian banks have colluded not to support the service which suggests that Apple Pay could be in for a rough ride trying to expand into international markets. China is unquestionably a hard nut to crack for many American companies due to stringent state regulations. A good case in point is Netflix (NASDAQ:NFLX), which has been eyeing the Middle Kingdom for some time now. Netflix’s chief executive Reed Hastings is on record saying that Netflix knows exactly what to do when it needs to expand to most countries, but was still exploring its options in China especially with regards to overcoming numerous regulatory hurdles. Netflix at last decided to partner with Wanda, a leading Chinese real-estate developer to give itself a better chance of succeeding in the lucrative yet complex Chinese market.
Apple has little trouble selling its smartphones in China, with more than 30% of its sales coming from this market. The company, however, has been facing the same quagmire as Netflix as it scouted for a suitable angle of attack for an entry into the market. Earlier in the year there were reports that Apple was in talks with Alibaba (NYSE:BABA) and wanted to collaborate with Alibaba’s giant mobile payment platform, Alipay. It appears as if the talks petered out and Apple might have to go it solo in China. But at least Apple can take some comfort in the fact that unlike in the U.S, mobile payments in China are much more popular. Alipay boasts a staggering 270 million monthly users in China, or about 20% of the country’s population. The popularity of mobile payments in China coupled with Apple’s huge installed base in the country are two factors that will work in Apple’s favor.
But still, it will not be a walk in the park for Apple because unlike selling iPhones, which the company is able to do quite independently, Apple will have to co-operate with several Chinese companies to bring Apple Pay to China. One of these is UnionPay, the $VISA of China. UnionPay owns practically all NFC terminals in China. This can be a potentially difficult situation for Apple due to the risk of relying on a single provider. Apple might also face a tough time convincing Alipay users to switch to Apple Pay, though the company can target the untapped market which is still huge.
Apple plans to launch Apple Pay in China before the Spring Festival of Feb. 8. The company has reportedly struck deals with China’s largest state-run banks, though details of transaction cost and Apple’s cut on the service are not available yet. But it’s fair to conclude that Apple Pay stands a decent chance of succeeding in China.