FINANCE: Xiaomi, Huawei Try E-Payments; UnionPay Thrives in US

Bottom line: UnionPay’s announcement that its cards are usable at nearly all US ATMs shows it is targeting local US customers, while stiff competition will limit the success of new Xiaomi and Huawei e-payment services.

UnionPay makes big gains in US

It’s been a busy week for Chinese companies in the electronic payments headlines, with 3 major names making big moves in the space. Leading the pack is industry stalwart UnionPay, China’s equivalent of MasterCard (NYSE: MA) and Visa (NYSE: V), which is saying its own credit cards are now accepted by an impressive 80 percent of US merchants. The other headlines are coming from smartphone makers Huawei and Xiaomi, which have announced roll-outs for China-based electronic payment services that will compete with other similar products from Apple (Nasdaq: AAPL) and Samsung (Seoul: 005930).

We’ll begin with the UnionPay announcement, which isn’t really news but instead contains some figures that show just how seriously the company is trying to challenge the big western credit cards on their home turf. In addition to saying its cards are now accepted by 80 percent of US merchants, UnionPay is saying that nearly all American ATMs now can dispense cash to holders of its bank cards. (company announcement)

I personally find those numbers slightly hard to believe, and UnionPay’s strange wording in its press release, saying “It is learnt … that almost all the ATMs in the US accept UnionPay”, suggests that maybe the source of the information isn’t extremely reliable. But even if the numbers are only half of what UnionPay is suggesting, it would still represent a remarkable achievement for such a young company founded back in 2002.

The rapid advance into the US contrasts sharply with Europe, where I can rarely find ATMs that accept my UnionPay cards when I’m on vacation. But the US seems to be one of the company’s major focuses, and earlier this year UnionPay announced it would start issuing US dollar-denominated credit cards. (previous post)

The obvious immediate audience for UnionPay in the US is Chinese visitors to the country, but these recent announcements indicate the company will soon try to aggressively pursue locally based US customers as well. Perhaps it may achieve some limited success  there. But like many Chinese companies, it will probably have difficulty competing with the big global names due to weak customer support.

Uphill Climb for Xiaomi

From UnionPay let’s move to Xiaomi, whose new electronic payment service will also have to compete in an increasingly crowded space. That space includes not only Apple and Samsung, whose service is limited to their own smartphones, but the even more potent WeChat and Alipay, which are accessible using any smartphone.

Xiaomi said it has teamed up with 20 banks, as well as UnionPay, to offer the new Mi Pay service over its smartphones. (Chinese article) The service looks quite similar to the one rolled out by Apple earlier this year, using near-field technology and back-end support from UnionPay.

Frankly speaking, I can’t see how Xiaomi will be able to compete very well in this crowded space. The company’s smartphone sales are already stagnating, meaning the addressable audience for the product will be quite limited. What’s more, many Xiaomi users might see little reason to use the service, since they can already install and use the more flexible Alipay and WeChat services.

Finally there’s Huawei, which I’ve deliberately saved for last because it actually announced its plan to launch an e-payment service back in March. (previous post) Thus the latest announcement of the service’s actual launch isn’t huge news, though it does contain some more detail, including the participation by more than 20 partner banks. (Chinese article)

Other than that, Huawei’s product looks quite similar to all the others, and is just one of many new areas that the company is moving into as it tries to expand beyond its original networking equipment business. I would give Huawei a slightly better chance of success than Xiaomi due to its stronger smartphone business, but still think it will have difficulty competing with WeChat and Alipay.

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