Why Is Apple Inc.'s Mobile Payment System Struggling in the World's Largest Smartphone Market?
China is a great market forApple . In fiscal Q1 2015, the company reported $16.1 billion in revenue from the greater China region (which includes Hong Kong and Taiwan), up 70% year over year.
And Apple's dominance in the country is inarguable, withApple narrowly missing the No. 1 smartphone vendor spot in China in calendar Q4, losing out to the China native Xiaomi.
But for Apple Pay, the company's new mobile payment system, things have not been quite as good.
Apple's been courting banks in China since last year, trying to get them on board with the company's new payment system, but so far most of that work has proved fruitless.
UnionPay --the only bank allowed to make interbank bank payments in China -- has yet to sign up for Apple Pay, and talks with eight other banks have gone nowhere as well.
In a country that's eager for Apple products this is especially troubling.
Why all the pushback?According to MarketWatch, Chinese banks believe Apple is simply asking too much money for its mobile payment transactions.
Apple takes 0.15% of every 2% fee that credit card companies charge to retailers. For example, if you buy a $20 blender at Target with your credit card, VISA would charge $0.40 to Target for the transaction, and if you paid with Apple Pay then Apple would get $0.06. For debit card transactions used with Apple Pay, Apple gets a flat half penny fee.
That seems to be too much for Chinese banks, so they've held off on offering Apple Pay support so far.
But there's also another problem for Apple.
Tencent's TenPay (which works like PayPal) already has 650 million registered users, 100 million of which are using its mobile payments. And unlike Apple Pay, TenPay doesn't take a cut of any transactions.
On top of that, UnionPay has it's own mobile payments platform, as doesAlibaba and China Telecom. If you combine all of these platforms they make up 80% of all mobilepayments made in China, according to China Internet Watch.
Between the pushback from the banks, and all the alternative mobile payments platforms already in the country, China isn't eager to add Apple Pay into the mix.
This isn't the end of the storyChinese consumers already love Apple devices, but the company wants to cash in on China's strong mobile payments trend -- even if if has to wait a while to do so.
Because state-owned UnionPay is the only way for Chinese banks to make mobile payments there's no way around Apple making some sort of deal with the bank. Whether Apple reduces its transaction rates in China is yet to be seen, but investors should note that UnionPay isn't likely to rollover for Apple on this one.
I think Apple will get its deal with UnionPay figured out soon, but investors should take notice that Apple Pay has yet to be a slam dunk outside of the U.S. (it's currently having problems in the U.K. as well). So while a deal may materialize later this year with UnionPay, Apple's new mobile payment service looks like it has a long road ahead of it.
The article Why Is Apple Inc.'s Mobile Payment System Struggling in the World's Largest Smartphone Market? originally appeared on Fool.com.
Chris Neiger has no position in any stocks mentioned. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
Copyright 1995 - 2015 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.