Apple Pay takes on local mobile payment giants

BEIJING - Apple officially launched its much anticipated Apple Pay service in China on Thursday, through a partnership with China UnionPay, entering the country's competitive mobile payment race.

Users of the iPhone 6 or more advanced versions, certain iPads and Apple Watches will be able to use their devices to buy items across Apple's second-largest market by revenue.

China is the fifth country where the service has been launched, after the United States, Britain, Canada and Australia.

Last year, 620 million people in China, or 90.1 percent of the nation's Internet users, used a smart device to go online, according to the China Internet Network Information Center (CINNIC). The potential market for Apple Pay is huge as 358 million people used mobile payment service last year, according to CINNIC data.

The customers of 19 Chinese banks will be able to link their bank accounts to Apple Pay, and UnionPay has provided compatible point-of-sale (POS) terminals for users to complete the transactions.

McDonald's said on Thursday that it will accept the contactless payment in 1,700 restaurants in China. Apple also lists Lane Crawford, Carrefour, 7-Eleven, Burger King, and KFC among the merchants already accepting in-store Apple Pay in China.

Several Chinese Internet firms also began accepting Apple Pay, making the service available alongside Alibaba's Alipay and Tencent's Tenpay. Chinese restaurant review and group buying services Meituan and Dazhongdianping and online retailer dangdang.com have also released Apple Pay-compatible versions of their apps.

More online and offline retailers are going to accept the new payment service, chief among them being JD.com, Alibaba's arch rival in e-commerce.

A merchant told Xinhua on Thursday that Apple Pay could potentially be used across a wide range of offline merchants as long as they have UnionPay's NFC compatible POS machines.

"It's fast and no password is required. All I need to do is placing my iPhone in front of the POS machine, put my fingers on the Touch ID and it's done." said Wang Tian, an office worker who bought lunch at KFC using Apple Pay on Thursday in Beijing.

UnionPay has long sought to make a dent in China's mobile payment market, which is dominated by Alibaba and Tencent. It previously worked with the country's three telecom operators to promote NFC-based mobile payment services.

The project failed to gain a sizable share of the mobile payment market, in part because of different technical standards employed by telecom operators and lack of merchant interest.

China's third party mobile payment market was valued at 16.36 trillion yuan in 2015, according to research firm Analysys. Alibaba and Tencent dominate the market. Alibaba's Alipay held 71.51 percent of the market in the third quarter last year, while Tencent's Tenpay had carved out a 16 percent share, data from Analysys show.

"Curiosity will definitely drive a lot of sign-ups to Apple Pay, but the key challenge for Apple and UnionPay is how to turn this initial interest into deep-rooted habits in the long term." said Sandy Shen, research director at tech consultancy firm Gartner.

Alibaba and Tencent have spent the past two years working to address that challenge. The two rivals have been locked in a breakneck race to lure consumers to choose to use their mobile payment service in a growing number of offline settings. Progress came after both splurged heavily to offer discounts.

Value propositions are therefore critical in persuading the country's penny-wise users to switch to a new payment service, Shen said.

Unclear of what benefit can be reaped through Apple Pay, some are holding out, preferring to just "wait and see."

"So far, I didn't see how it differs from the services offered by Alibaba or Tencent. There's just not that much incentive for me to use it," said Cheng Xiaosun, an iPhone 6s user in Beijing.

Analysts predict that a promotional campaign similar to those that gave Alipay and Tenpay mass exposure will be used for Apple Pay in China, but UnionPay and the banks are more likely to take the lead in this regard, rather than Apple.

"I choose electronic payment over cash because I can get discounts. That's why I began using Alipay and Tenpay in the past and if Apple wants me to use its payment service, it will have to do the same," Cheng said.