FINANCE: Apple Poised to Beat Visa, PayPal Into China E-Payments

Bottom line: Apple could become the first big foreign company to offer domestic electronic payment services in China, representing a major accomplishment for CEO Tim Cook in his recent campaign to improve relations with Beijing.

Apple Pay eyes February China launch

Big names like Visa (NYSE: V), MasterCard (NYSE: MA) and PayPal have been waiting for years to offer electronic payment services in China, but now it appears that tech titan Apple (Nasdaq: AAPL) may be the first to break into the lucrative market. That’s the signal coming from the latest headlines, which say that Apple is aiming to formally launch its Apple Pay electronic payments service in its second largest global market in the next few months.

If Apple succeeds, the move would represent a major victory for the company and vindication of CEO Tim Cook’s recent campaign to cultivate better relations with Beijing. Apple Pay would be entering the market less than 2 years after the product’s formal launch, which is extremely fast for bureaucratic China. By comparison, Visa, MasterCard and PayPal have all been waiting more than a decade for China to open the market, and the 2 credit card giants even led a campaign that resulted in a complaint at the WTO.

Before we look further at the broader picture, let’s review the headlines that say Apple has struck recent deals with China’s 4 largest banks to support a launch of a Chinese Apple Pay service. (English article; Chinese article) The reports say Apple is targeting a China launch before the big-spending Lunar New Year, which falls on February 8 next year. But they add that regulatory approvals could still delay that plan.

Such regulatory approvals are indeed a complex matter, since China has never formally approved a major foreign company to offer domestic electronic payment services yet. It has signaled it will accept applications for such services from Visa and MasterCard, following a WTO ruling ordering it to open the market more than 3 years ago. (previous post) PayPal has been waiting equally long to enter the market for domestic transactions, and has said several times it believed its application would be approved, only to never receive the necessary permission.

Cook has embarked on a major campaign to improve his company’s China position over the last 2 years, including a public relations blitz to burnish Apple’s image as a good corporate citizen. He has traveled to China at least twice a year over the last couple of years, including his latest trip to Beijing just last month. (previous post) His efforts seem to be bearing fruit, with the company cementing its place as China’s leading seller of high-end smartphones.

Cook first mentioned Apple Pay in China on a trip to the country in May this year, with Chinese media reports saying that bringing the payment service to the market was one of his main missions on that visit. (previous post) He didn’t elaborate any further, but I predicted at the time that the company could ultimately launch the service within the next 12 months.

Payment Milestone

Apple’s arrival would make it the first major global company in a market now controlled almost exclusively by Chinese names. The biggest player is UnionPay, a decade-old joint venture between most of China’s largest banks, which operates using a business model similar to Visa and MasterCard. But UnionPay has been increasingly challenged over the last few years by Alipay, the aggressive electronic payments service that is part of Ant Financial, the financial services affiliate of e-commerce giant Alibaba (NYSE: BABA).

The arrival of Apple Pay would follow a similar earlier breakthrough for Apple, which allowed it to become the only major foreign company to operate a Chinese version of its popular app store to support its iPhones. Rival Google (Nasdaq: GOOG) is aiming to bring its own Google Play app store to China soon, with the latest reports indicating that could happen in the next 6 months. (previous post)

At the end of the day, China is opening these and other markets under external pressure to create a more level playing field for foreign companies. But the fact that Apple is taking the lead as first major foreign entrant into apps, and now electronic payments, represents a major achievement. That’s an especially remarkable turnaround for a company whose image  took a beating in China a couple of years ago, and shows that Cook’s campaign to improve its local reputation is rapidly producing results.

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