Alibaba Group Holding Ltd Faces Serious Threat From Apple Pay

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Apple’s mobile payment service Apple Pay has gone live in China, a market dominated Alibaba’s Alipay and Tencent’s Tenpay (including WeChat Payments). Jennifer Bailey, VP of Apple Pay, told Reuters that the company’s payment service could be used by 19 banks, numerous merchants, and app developers. In a major boost, the Industrial and Commercial Bank of China (ICBC), China’s largest bank, has said its customers would be able to use Apple Pay from Thursday.

Alipay dominates the Chinese mobile payment market

According to iResearch, Alibaba’s Alipay controls 82.3% of the country’s mobile payment market, followed by Tenpay with 10.6%. It seems like Apple Pay would not have an easy ride in China, the fifth market to get the service. The Chinese mobile payments market is already saturated. Today, almost every smartphone user in the country has a local payment option on their devices.

For instance, Alipay has more than 400 million active users. Alipay, Tenpay and other domestic services cover everything from ride-hailing to online shopping to food delivery. Alibaba and Tencent have strategically integrated their respective wallet services with their other apps like shopping and messaging. But Apple has a distinct advantage that can help it give Alibaba a good fight in its home turf.

Apple Pay has partnered with UnionPay, China’s state-owned payment card monopoly. UnionPay cardholders can make payments via their iPhones, Apple Watches, and iPads. Apple has 19 of China’s biggest banks as its partners. That means about 80% of the country’s debit and credit cards are eligible for Apple Pay.

Apple has an edge over Alibaba in mobile offline payments

Though Alibaba’s Alipay has strong connections with the company’s online services, the story is entirely different offline. If you want to pay in a shop via Alipay, you have to open the payment app, scan a barcode with your phone’s camera, and then you can make a payment. Apple Pay is far more convenient. You simply have to hover your iPhone over a payment terminal while touching your finger to the home screen for identity confirmation. It uses NFC chips for payments.

Mobile offline payment in China represents a huge opportunity for Apple. UnionPay owns all of the nearly 20 million payment terminals in the country, and plans to upgrade them to NFC terminals by May 2017. UnionPay’s NFC service QuickPass is already available in about 4 million terminals. Alibaba’s QR code-based technology is slow, and has nothing to do with these terminals.

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