Apple Pay’s China debut faces challenge in low NFC penetration
Apple Pay debuted in China this week, potentially providing a significant boost to the mobile payments platform, but low penetration of near-field communications terminals suggests growth will remain measured for some time.
Apple is expecting China to be a significant market for its mobile payments play, although the company faces competition from AliPay, WeChat Payment and Samsung Pay. Apple Pay has significant reach out of the gate thanks to a partnership with UnionPay, China’s state-run bank network, and a number of merchants reportedly accepting it, including McDonald’s, Lane Crawford, 7-Eleven, Burger King and KFC.
“China has a couple of very large mobile payment competitors in place and conducting transactions, Alipay and Tencent’s TenPay,” said Thad Peterson, senior analyst at Aite Group. “While Apple Pay offers a more elegant user experience with NFC connectivity, the penetration of NFC capable terminals in China is still fairly low.
“Also, Samsung Pay is already in market,” he said. “The flip side is that Union Pay brings the power of the banks into the equation and the Apple brand is a powerful icon in the Chinese market.”
China is an important region for mobile payments given that it is the biggest smartphone market in the world and a significant number of owners have already made a purchase from their phones.
Apple is banking on the ease-of-use and key partnerships for Apple Pay to win over users in China, the fifth market it has entered.
Apple hopes to gain an advantage in the Chinese market by partnering with banks, enabling a significant percentage of the country’s credit cards and debit cards to work on the platform.
However, with a number of Chinese retailers still not having integrated NFC-enabled terminals, this could slow adoption by consumers.
Apple Pay also faces significant competition.
Alipay, offered by ecommerce company Alibaba, and WeChat Payment, operated by social networking company Tencent Holdings, are seeing success with Chinese retailers. Alipay commands 45 percent of the mobile payment market in China and WeChat Payment 19 percent, according to Analysys.
China Jo-Jo Drugstores, which distributes pharmaceutical and health care products through its own stores, wholesale and online, reported this week that in the third quarter, Alipay mobile transactions grew 84 percent while traditional payments grew 27 percent compared with the previous quarter.
The merchant launched Alipay in Nov. 2014 and WeChat Payment in July 2015.
China Jo-Jo reports that providing convenient and familiar mobile payments options to its customers is helping to drive overall transaction growth.
“We’re still dealing with one generation of iPhones that are Apple Pay capable and the penetration of NFC terminals in the U.S. is still low, but growing,” Mr. Peterson said. “Apple is only now starting to move into other markets where the availability of NFC terminals is less of an issue.”