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Can Apple and Samsung Fight and Win Against the 90% Dominance of Alipay and Tenpay?

Apple Inc. and China UnionPay announced a partnership in their official press release to bring Apple Pay to China through UnionPay’s network. China UnionPay cardholders will be able to easily add their bank cards to Apple Pay on any Apple device, which will add convenience and security to everyday shopping.

Chai Hongfeng, executive VP of China UnionPay, commented on the partnership, China UnionPay is dedicated to promoting payment innovations and providing secure, convenient mobile payment experiences for its hundreds of millions of cardholders, aligning multiple parties in the industry. We’re very excited to offer Apple Pay among a diverse set of innovative payment options that work with China UnionPay QuickPass.

China UnionPay’s QuickPass and Apple Pay together will protect customer payment information through the industry-leading payment tokenization technology. As security is one of the top priorities, users’ card information will not be stored neither on the device, nor on Apple servers. As explained in the announcement, a unique Device Account Number is assigned, encrypted and securely stored in a dedicated chip called the Secure Element on the device. Each transaction is also authorized with a one-time unique dynamic security code.

Eddy Cue, Apple’s senior VP of Internet Software and Services, shared his excitement about the opportunities in the Chinese market, China is an extremely important market for Apple and with China UnionPay and support from 15 of China’s leading banks, users will soon have a convenient, private and secure payment experience.

Convenience and simplicity powered by security are demonstrated in the examples of usage for the service. A customer can simply hold the iPhone near China UnionPay’s QuickPass-enabled POS terminals with a finger on Touch ID® to make a payment. With Apple Watch, customers will just need to double click the side button and hold the watch face up to the contactless reader to make a purchase.

Apple Pay will be rolled out to China UnionPay cardholders in early 2016 after relevant tests and certifications as required by Chinese regulators. To date, the total number of issued UnionPay Cards is over 5 billion globally, which makes it the largest card issuer in the world. The UnionPay network has been extended to all cities and rural areas in China. UnionPay cards can be used in more than 26 million merchants and at 1.9 million ATMs.

It is not clear how much Apple would charge for purchases made through Apple Pay in China. For Apple, China is one of the most important markets due to its prominent presence. In Q3 2015, out of Apple’s $46.9 billion in revenue, China’s share was 27%. The reason behind China contributing such a bigger pie in the revenue is because of the demand for the iPhone in the region.

After launching in the United States last October and in the United Kingdom this summer, Apple Pay is showing a gradual growth. Most recently, Apple Pay has expanded to Canada and Australia. It will be more interesting to watch how it is going to perform in China – the largest smartphone market in the world – which represents a significant business opportunity for mobile payments systems.

Interestingly, on the same day as the announcement on Apple Pay came out, China UnionPay also announced the collaboration with Samsung to power Samsung Pay. UnionPay cardholders in China, in addition to Apple Pay, will be able to enjoy Samsung Pay as well. Samsung Pay will also be rolled out in China in early 2016.

Chai Hongfeng, Executive Vice President of China UnionPay, commented on the market trends and cooperation, With the rapid development of the mobile payment industry, China UnionPay is committed to open cooperation with other parties in the industry to provide more secure and more convenient products and services for consumers. This cooperation between China UnionPay and Samsung will combine the strengths of the former in payment and the expertise of the latter in mobile terminals to jointly create brand new mobile payment experience for consumers, and to further expand the user base of UnionPay QuickPass brand.

Samsung Pay is direct competition to Apple Pay with a similar convenient, simple and secure experience. Payment can be easily made within just a few seconds with a simple swipe up, scan and pay. Samsung Pay is accepted at most of the POS terminals in China, including QuickPass-enabled NFC POS terminals. Security wouldn’t be a concern with Samsung Pay either, as it ensures secure transactions with a reliable triple-layered protection mechanism including fingerprint identification, tokenization and KNOX.

InJong Rhee, Executive Vice President of Samsung, commented on the collaboration, With technological innovation, Samsung Pay expands the usage of mobile payment. It simplifies the procedure for better user experience, and adopts multi-layered protection to ensure security, allowing easier and safer mobile payment experience. The collaboration with China UnionPay, coupled with the support from major UnionPay partner banks in China, will bring this secure and easy-to-use mobile payment solution to more Samsung mobile users.

Both Apple and Samsung will face a tight race in the payments market in China. Alipay was controlling 83% of China’s third-party mobile payment market in 2014, while Tenpay held 10%. Moreover, Apple Pay charges 0.15% of each transaction, which would be too expensive in China, given that the total fee paid by some merchants is only 0.38%, as stated by Bloomberg.

Alipay has a very strong position in the Chinese market, with more than 400 million registered users making purchases from desktop computers, tablets and smartphones at more than 130,000 merchants. The Chinese e-commerce giant Alibaba said that 54 out of every 100 payments made with Alipay come from mobile devices.

Di Jin, an analyst at Forrester Research, shared with Bloomberg his thoughts on Apple entering the payments market in China to compete with existing giants, Alipay remains the industry’s dominant player, which Apple Pay would find difficult to surpass in the near future. The partnership between Apple and UnionPay is a strategy of compromise that is unlikely to help Apple gain more users from their competition, despite UnionPay’s existing mobile payment alliances with banks and Internet companies."

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