Apple Pay debut in China will promote NFC-based mobile payment

Apple Pay logo Photo: Getty Images 

US technology giant Apple has officially launched its mobile payment service Apple Pay in China, one of its key markets for iPhone sales.

Apple Pay only allows iPhone or Apple Watch owners to pay at physical retail stores via near-field communication (NFC), a wireless technology which transmits data from a special chip-equipped handset to a bank through NFC-based point-of-sale (POS) checkout registers.

China's mobile payment market is dominated by Alibaba's Alipay and Tencent's Tenpay and WeChat Payment, the three popular apps that use quick-response bar code to complete transactions and can run on any smartphone.

According to statistics from research firm Analysys, Alipay accounted for 71.51 percent of the third-party payment market in the third quarter of 2015, followed by Tenpay with 15.99 percent, while the share of China UMS, owned by China UnionPay with which Apple cooperates on Apple Pay, was only 0.49 percent.

Nevertheless, Jennifer Bailey, vice president of Apple Pay, still expects China to become Apple Pay's largest market.

Mobile bank

At present, Apple Pay has gained endorsement from 12 Chinese lenders including the "big four" banks, according to Apple China's website. The credit and debit cards issued by the 12 banks are provisioned for use on Apple Pay. An additional 7 banks will also join the bank partner list within this year, said Apple China's website.

"In China, Apple has a large number of iPhone users with better-than-average spending power and its cooperation with banks on mobile payment is within reach. It will bring an opportunity to enhance the presence of NFC-based mobile payment in the country," said Chen Li, assistant analyst at the China E-commerce Research Center.

China CITIC Bank, one of Apple Pay's bank partners, has been aware of the potential of contactless payment business in China. In September 2015, the bank joined hands with Huawei to launch a NFC-based e-credit card. The move was followed by a year-end agreement reached with China UnionPay, under which contactless mobile payment can be available on QuickPass-branded POS machines.

"In the future, credit cards will be displaced by wearable devices. After experiencing the Internet tidal wave, we aligned with an enterprise (Apple) which we had no connection with, and will use the collaboration to provide our customers with more value-added services…We want to be a well-recognized bank in the smokeless battlefield of mobile payment," said an official from China CITIC Bank.

Alipay and WeChat Payment have helped consumers form a habit of binding bankcards with mobile payment apps. Further, Apple Pay's foray into China gives an opportunity for traditional financial institutions to enter the NFC-based mobile payment market where banks are believed to have little advantage.

Popularity of NFC-based payment

Since 2011 when China UnionPay launched QuickPass, the contactless payment service equipped with NFC did not gain much momentum in China's mobile payment market, compared with Alipay and WeChat Payment, which explored the offline market by offering favorable policies in the form of red envelops, discounts and subsidies. But Apple Pay may trigger the rise of NFC-based mobile payment in the country due to iPhone's high popularity among the Chinese people.

Some industry insiders are bullish on the future of Apple Pay in China, citing security and time-saving convenience.

On the technological front, Apple Pay could be safer than Alipay and WeChat Payment, whose users might risk leaking their bank account information due to the two apps' payment processing.

Apple Pay adopts a security technology called tokenization, which transforms users' bank account information into an encrypted token when processing transactions. During the process, some information is tokenized, some is encrypted, and the information is stored securely in a tamper-proof chip.

"In other words, the encrypted token prevents both merchants and Apple itself from obtaining users' bank account information. During this process, a user's identity can be verified by fingerprint authentication, which is safer than the current mobile payment processes," said information technology expert Lu Bei.

Li Yan, CEO of Beijing Weipass Panorama Information Technology Co., a leading Chinese POS technology and service provider, said that the technology behind Apple Pay's processing respects the existing mobile payment and clearing system followed by the traditional banks and bankcard issuers because it does not open a new account used for collection and settlement of users' money. "It is totally different from Alipay and WeChat Payment," said Li.

Another advantage is that Apple Pay can work without the web, and the transaction processing takes a few seconds in two steps — holding an iPhone near an NFC-based POS machine and then putting a finger on the Touch ID button.

However, some industry insiders still believe that Apple Pay cannot beat the existing mobile payment services led by Alipay and WeChat Payment in a very short period.

"Firstly, it will take a long time to upgrade the POS machines to accept NFC-based mobile payment. Secondly, Apple Pay still needs some time to cultivate its own user base in the already established Chinese mobile payment market," said Hao Zhujing, an analyst from Analysys.

Among the 10 million POS machines owned by China UnionPay across China, only 3 million machines are equipped with QuickPass service, according to the bankcard association's data.

What's more, based on the fact that the share of iPhone in the Chinese market is only 11 percent including its old models, it is estimated that Apple Pay's market share in China would be less than 10 percent.

Regulatory dividend

At the end of last year, China's central bank released Administrative Measures for Internet Payment Services of Non-banking Payment Institutions, which encourage payment institutions to work as a payment channel, and require that payment accounts can only be opened by payment institutions with industry license at the request of customers.

The regulation also stipulates that payment institutions must take on the legal responsibility in case that customers' personal information is leaked by the payment institutions or merchants.

Last month, China's central bank wrote off the payment license of a Shanghai-based third-party payment institution after it was found guilty of embezzling customers' excess reserves valued at billions of yuan.

As of the end of October 2015, 268 third-party payment institutions were granted the payment licenses by China's central bank, according to a report by the Payment and Clearing Association of China.

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