Apple Pay May Sail Past China Regulators With Alibaba Group Holding Ltd Deal

iphone 8 apple stockElisaRiva / Pixabay

Apple Inc. (NASDAQ:AAPL) announced its Apple Pay service earlier this year, and the company will face significant regulatory scrutiny to get it approved for use in China. Since the announcement, there’s been a lot of debate about whether Apple will partner will Alibaba Group Holding Ltd (NYSE:BABA) for the service.

Will Apple partner with Alibaba?

Executives of both companies have gone back and forth in public commentary about a possible partnership for Apple Pay. One problem Apple faces is that Alibaba’s AliPay isn’t as large as its current payments partner in China.

In an interview with The Wall Street Journal, Alibaba Executive Chairman Joseph Tsai said Apple is negotiating with Ant Financial, the company in which Alibaba a stake in and that handles AliPay. He also said that it would be a good idea for Apple to sign a partnership agreement with AliPay because it could enable the Cupertino, Calif.-based company to easily pass regulatory barriers in China.

What the deal could look like

According to Tsai, they’re trying to determine if Apple Pay and AliPay could partner in China somewhere. He said they’re possible about the potential of making an agreement with Apple but that it depends on the specifics of any such agreement.

The Alibaba executive said it’s possible that when iPhone owners use Apple Pay, AliPay could take care of the payments on the back end. That would mean that the money for payments made using Apple Pay would come right out of users’ AliPay accounts.

The reason Apple could benefit from striking a deal with Alibaba is because AliPay already has a license to run a payments business in China.

Alibaba and Ant Financial

When Alibaba Group filed for its initial public offering it said it had obtained the right to purchase a one-third stake in Ant Financial. Tsai said there are a couple of ways they could “participate in the economics of Ant Financial.”

He said they could have a profit sharing deal, which they are working on currently. He also said that they could turn that profit share into the one-third stake they mentioned in their IPO filing and that the valuation should be “about the same.” The executive also said shareholders may prefer Alibaba taking a direct stake in Ant Financial but that regulators are likely to block that deal.

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