Apple, Samsung to Enter China Payments Market

They Are Partnering With China's Largest Payments and Clearing Network

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Credit: Chris Ratcliffe/Bloomberg

Apple Inc. and Samsung Electronics Co. reached separate agreements with China UnionPay to introduce their competing mobile payments systems in the country next year.

Customers of UnionPay, China's largest payment and clearing network, will be able to add their bank cards to iPhones, iPads and the Apple Watch for purchases through Apple Pay, the companies said in a statement. Users of Samsung Galaxy and Note devices will have similar options.

While the deals allow the two biggest smartphone makers to take their nascent payments systems to the world's largest market with the backing of state-backed UnionPay, they will face entrenched competition. Alibaba Group Holding Ltd.'s Alipay and Tencent Holdings Ltd. Tenpay have already built large customer bases for payments on their e-commerce and other business platforms.

"Alipay remains the industry's dominant player, which Apple Pay would find difficult to surpass in the near future," Di Jin, an analyst at Forrester Research, said in an e-mail. "The partnership between Apple and UnionPay is a strategy of compromise that is unlikely to help Apple gain more users from their competition, despite UnionPay's existing mobile payment alliances with banks and Internet companies."

Different technology

Still, for foreign companies such as Apple and Samsung, China offers an opportunity to profit from a market where mobile-payment transactions jumped 134% to 22.6 trillion yuan ($3.5 trillion) last year, central bank data show.

Apple and Samsung use different technology for their services. Apple Pay utilizes near-field communication, which enables users to pay for purchases by tapping their phone or watch with stored bank-card information on a device at cash registers.

UnionPay has more than 5 million point-of-sale machines that are NFC-enabled in China. While Samsung's service also uses NFC, it offers traditional magnetic stripe reading technology as well.

Market share

Alibaba's Alipay affiliate controlled 83% of China's third-party mobile payment market in 2014, while Tenpay held 10%, according to market-research firm iResearch. Alipay allows its more than 400 million real-name registered users to make purchases from desktop computers, tablets and smartphones at more than 130,000 bricks-and-mortar merchants, according to its website.

The mobile payments tool will be available for China UnionPay cardholders as soon as early 2016 after tests and certification required by Chinese regulators, the companies said.

"China is an extremely important market for Apple, and with China UnionPay and support from 15 of China's leading banks, users will soon have a convenient, private and secure payment experience," Eddy Cue, the Cupertino, California-based company's SVP of Internet Software and Services, said in the statement.

Established in 2002 in Shanghai by the State Council and the central bank with shareholders including major Chinese banks, UnionPay has more than 4.6 billion bank cards in circulation, with a network across more than 150 countries, according to its website.

"Banks hope to use the UnionPay platform to get involved in the sector of mobile payment," said Chen Xingyu, a Shanghai-based analyst at Phillip Securities Research. "By cooperating with Apple and Samsung, UnionPay side can reach middle or high-end clients."

--Bloomberg News--

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