FINANCE: Apple, Samsung Auger Wave of China E-Payment Tie-Ups

Bottom line: Apple’s and Samsung’s simultaneous new mobile payment tie-ups with UnionPay indicate Beijing will open the market next year to foreign companies, many of whom may choose to partner with not only UnionPay, but also Alibaba or Tencent.

Apple ties with UnionPay

In what should come as a big surprise to no one, Apple (Nasdaq: AAPL) has formally announced a tie-up with Chinese electronic payments giant UnionPay to bring its Apple Pay service to China as soon as early next year. This particular development isn’t hugely unexpected, since Apple CEO Tim Cook had previously talked of such plans and media reported Apple was close to such a deal last month. (previous post)

What does come as a slight surprise is the addition of Samsung’s (Seoul: 005930) name to the latest reports, as the South Korean smartphone giant announced its own separate deal with UnionPay. Apple’s choice of UnionPay also is a slight surprise, since the earlier reports only said that Apple was in talks with several major Chinese banks. Last but not least, this latest announcement seems to be the strongest indicator yet that China will finally open up its electronic payments market to foreign  companies in the first half of next year.

We’ll begin with a recap of the latest headlines, which have both Apple and Samsung announcing their intent to launch electronic payment services connected to their iPhone and Galaxy smartphones, respectively, in China next year. (Apple announcement; English article; Chinese article) The simultaneous nature of their announcements is significant because it means that UnionPay is probably confident that both companies can get necessary government approvals for the launch in the next few months.

The move would make Apple and Samsung the first 2 foreign companies to offer electronic payment services in China. UnionPay is the oldest provider of such services, with more than a decade of operational history following its founding in 2002 by China’s largest banks. UnionPay operated a monopoly for most of its first decade in business, but recently has been challenged by aggressive domestic rival services operated by Internet giants Alibaba (NYSE: BABA) and Tencent (HKEx: 700).

Against that backdrop, it’s relatively significant that UnionPay has emerged as the first partner for both Apple and Samsung. That’s because UnionPay has been quite a laggard in responding to the challenge from its private sector rivals, and these new agreements indicate it is finally becoming more aggressive to defend its former monopoly.

Leveraging Government Ties

In this case UnionPay is probably using not only its national transaction-clearing network, but also its strong ties to the nation’s largest banks and Beijing to win the coveted position as the launch partner for both Apple and Samsung. All of those connections will be critical for any foreign payment services provider, which must get regulatory clearance from Beijing and then work closely with the nation’s banks to process transactions.

I do expect that Apple and Samsung are probably both also talking with Alibaba’s Alipay and Tencent’s Tenpay, as both are also quite important players in the market. Alipay is hugely popular in Alibaba’s core e-commerce space, and thus would assist the foreign companies in that area. Tencent’s hugely popular WeChat mobile platform could also become a valuable asset for both Apple and Samsung when they launch their mobile payments services.

At the end of the day, this growing rivalry among domestic companies should be good for not only Apple and Samsung, but also others like MasterCard (NYSE: MC), Visa (NYSE: V) and PayPal, which are all waiting eagerly to enter the market. I expect we’ll see all 3 of those and a number of others enter China sometime next year. That will end years of waiting, and provide some healthy new life and perhaps even some much-needed innovation to the world’s largest Internet and mobile payments market.

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