FINANCE – Apple Ties With UnionPay, Baidu Eyes 99Bill
Bottom line: Apple’s new UnionPay tie-up is aimed at an eventual roll-out of its Apple Pay in China, while Baidu’s reported purchase of 99Pay marks a late but needed bid to boost its electronic payments capabilities.
A couple of electronic payments stories reflect the rapid changes taking place in China’s banking market, where such payments are quickly making cash and even traditional credit cards obsolete. The higher-profile of the 2 deals has global gadget leader Apple (Nasdaq: AAPL) in a deal to accept payments for its China app store in partnership with leading electronic payments firm UnionPay. The second deal has leading Internet search Baidu (Nasdaq: BIDU) reportedly looking to boost its presence in the space with plans to buy existing player 99Bill for 2 billion yuan ($325 million).
An experience I had at a recent dinner with some former students illustrates just how quickly e-payments and related services have exploded in China. When the dinner was finished, one student paid the bill using his credit card. I gave him some cash for my share, but then noticed that no one else was giving any money. When I inquired what was happening, I learned that everyone else was paying their share via money transfers over their cellphones using Alipay, the popular electronic payments service founded by e-commerce leader Alibaba (NYSE: BABA).
What’s happening with electronic payments now in China is similar to what happened about a decade ago with cellphones. In that earlier case, China leapfrogged older land-line phone technology and went straight to mobile phones due to the country’s late arrival to telecommunications. Now it seems Chinese are leapfrogging older non-cash payment methods like credit cards and checks, and are jumping head-first into newer electronic payments.
In the case of cellphones, the rapid change quickly transformed China into the world’s largest mobile communications market with more than 1 billion users. Now the same looks set to happen for electronic payments, which is why latecomers like Apple and Baidu are now scrambling to boost their products and services in the market.
Let’s start with Apple, whose new tie-up will formally let Chinese consumers use the UnionPay network to buy items from the company’s China app store. (company announcement) That will instantly make Apple app store products accessible to most Chinese, since nearly everyone in the country has ATM and credit cards that use the UnionPay network to settle electronic transactions, similar to the Plus network operated by Visa (NYSE: V) in the west.
The move follows buzz a few weeks ago of a similar tie-up between Apple and Alipay, based on comments by Apple CEO Tim Cook. (previous post) The bigger story behind these new initiatives is Apple’s recent launch of its own Apple Pay service. Having come late to electronic payments, Apple is now scrambling to find partners like Alibaba and UnionPay to help popularize the service, especially in the important China market.
Next let’s look at the reports that say Baidu is on the cusp of a deal to buy 99Bill. There’s not much more detail, except to say Baidu and 99Bill have both declined to comment. (English article; Chinese article) One report points out that 99Bill’s CEO and one of Baidu’s senior consultants are husband and wife, meaning the 2 companies already have a sort of relationship.
This kind of deal certainly looks quite possible, since Baidu is easily the biggest laggard in the electronic payments space among China’s “Big 3” Internet firms. Alibaba is the leader with Alipay, and Tencent (HKEx: 700) is being quite aggressive with its Tenpay and new related services on its popular WeChat mobile messaging platform. Thus a big move into the space could help boost Baidu, though its own relative lack of consumer products to sell online could limit its usefulness in promoting 99Bill’s payment services.
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