Tim Cook, CEO of Apple, attended the fourth World Internet Conference in Wuzhen, Zhejiang Province earlier this month. He delivered a speech regarding Apple’s business interests in China and AI technology. The aim of his trip to China, however, was far beyond just that.
On December 4th, Cook met up with Meituan-Dianping CEO Xing Wang in Dahuchun, a restaurant renowned for its pan-fried buns. Meituan-Dianping, formed through the 2015 merger of Meituan and Dianping, has become the leading player in internet-based services accessible via smartphone apps. After the meal, Meituan-Dianping announced that it would begin to integrate deeply with iOS, the proprietary mobile operating system created and developed by Apple.
Currently, iPhone users running iOS 11 can order and conduct payments through the scanning of QR codes with their iPhone’s camera app. Naturally, the payment channel is Apple’s own payment product — Apple Pay.
Two giants, nearly 90% market control
The rise of QR code payment, a cashless mobile payment option utilizing the convenience and efficiency of QR codes, is a result of the development and popularization of mobile consumerism. People can pay for a wide range of services and goods — digital or physical — simply by scanning QR codes placed in prominent locations in stores, restaurants, etc. The emerging payment system has been widely embraced by large shopping centers and small merchants alike across China. Some merchants may in fact subsidize QR code payments because digital transactions save both time and labor. The popularity of QR code payment has undoubtedly and fundamentally changed the consumer experience, as users can shop offline but pay online.
QR code payment has become a competitive area in China. Two dominant giants in the area are Alipay and WeChat Pay, which belong to Alibaba and Tencent respectively. Statistics from Analysys showed that these two online payment portals controlled 50.42% and 38.12% of the market, respectively, in the third quarter of last year, leaving less than 12% in market share to other competitors. Yet, one of these other competitors is a global giant — Apple.
Despite its lackluster performance thus far in China, Apple Pay controls 36% of the market in the United States and has become predominant in mobile payments there. Still though, Apple may not be willing to give up on China’s market, which is the world’s largest in terms of mobile payments. Apple Pay successfully attracted 30 million user bank cards to its system when it first launched in China last year. It also employed several promotional and advertising strategies to popularize Apple Pay. In July, it subsidized consumers with discounts up to 50% at select vendors when using Apple Pay.
After a year since its launch, Apple Pay remains less attractive for Chinese consumers as it is for American consumers. Of the 12% of the market not controlled by Alipay or Wechat Pay, Apple has captured no more than 1% in the fourth quarter of 2016 and first quarter of 2017, according to iResearch. Therefore, cooperation with Meituan seems vital if Apple hopes to achieve new growth opportunities for Apple Pay.
Mobile payment concerns
Mobile payment continues to shift toward a cashless future globally. Apart from Western countries and China, the wave of QR code payments has swept other Asian countries. For example, QR code payments have been applied in Indonesia, brought by Hong Kong-registered startup Pundi Pundi. This company also plans to enter the markets of Malaysia, Singapore, Vietnam, and Thailand. In India, code-based payment services IndiaQR was even sponsored by the government, triggering a wave of investment in developing new payment services.
While merchants, technological enterprises, and banks have actively participated in the transition to a cashless society, they still face numerous challenges at present. Firstly, older generations often find it difficult to adapt to a cashless society. Statistics show that people over 60 years old number 230 million in China, constituting 16.7% of the national population. They often find it difficult to use smartphones to scan QR codes, and thus a cashless society may marginalize this very significant portion of society.
Moreover, mobile payments in rural areas are not as developed as those in large cities. On the one hand, merchants in deprived areas are unwilling to bear the cost of digital payments. On the other hand, bank card holder rates are comparatively lower than that in urban areas.
Apart from this, people and their governments are concerned about the security of mobile payment systems. In China, the non-bank payment business has soared to RMB 54.25 trillion (USD 8.22 trillion), a year-on-year increase of more than 120%. In order to supervise the vast amount of online transactions, China’s Central Bank issued an announcement on August 4th declaring that the online payments of non-bank payment network institutions would transfer its direct connection with banks to a unified clearing platform. In this way, transactions on platforms like Alipay and WeChat Pay can now be supervised by China’s Central Bank.
Junfeng Dong, the preparatory group leader of the unified clearing platform, was aware of the potential for misuse of personal information with online payment institutions. He said that the unified clearing platform aims to lead online payment institutions in transitioning from efficiency-oriented patterns to a security-oriented patterns. Thus, individual users can expect a safer and more protective payment environment.
Surely, online payments will continue to grow increasingly popular. Only time will tell, however, whether Apple Pay will be able to make inroads into a market already dominated by giants like Alipay and WeChat Pay.
(Top photo from 699pic.com)