Apple Pay

Is Apple Cutting Chinese Banks An Apple Pay Fee Deal?

It wasn’t easy for Tim Cook to get Apple Pay into China, but his company was finally able to make that vision a reality last week (Feb. 18).

Now, however, new details have surfaced as to why China’s banks were finally ready to jump on the Apple Pay bandwagon. According to a report in the Chinese news site Caixin, Apple cut a deal with Chinese banks to charge them less fees than what it charges banks in the U.S.

While that report cited unnamed sources said to be close to the matter, it does come at an interesting time as it was somewhat curious what made China’s banks give into Apple’s deal since there are already other mobile payments options (like Alipay) dominating the consumer payments market.

What the sources indicate is that Apple will get .07 percent of each Apple Pay transaction, which is less than half of what U.S. banks fork over to Apple per transaction. In the U.S., banks are charged .15 percent fees on each purchase. Apple will reportedly begin collecting its fees in two years post launch.

While these details about China’s banks and Apple Pay transaction fees are not confirmed by Apple, it isn’t out of the realm of possibility — especially because the bank fees were at the root of what delayed Apple Pay from coming to China sooner. A deal was eventually made in December to bring Apple Pay to 15 of China’s banks, which is now up to 19.

“These 19 banks will pay Apple the fees at a discount, but banks that get on board later may not have the leverage anymore,” an unnamed source told Caixin.

Apple CEO Tim Cook has said many times how China could be Apple’s greatest market eventually. Can the same be said about Apple Pay, where there is already a clear favorite for mobile payments? We’ll have to wait and see.

Outside of the banks, Apple Pay will also work with China UnionPay. China’s biggest lender, Industrial and Commercial Bank of China, agreed to work with Apple Pay this week on its launch day. So far, Apple has secured the support of the credit card issuers/networks that account for 80 percent of China’s credit/debit cards.

Apple’s UnionPay deal, however, could be a saving grace to make a mark in the region. Apple Pay may also have an edge since its technology is a bit more updated and doesn’t involve the consumer having to open up an app to pay via a QR code. Alipay and Tencent’s digital wallets still rely on those to make the digital wallet payments. NFC has been pushed by some in the industry as a safer way to pay since it’s less likely to have the chance to get hacked.

“China UnionPay and our Apple Pay solution has a huge advantage, given the footprint of China UnionPay,” Jennifer Bailey, VP of Apple Pay, told Reuters. “Its merchant acceptance network far exceeds what any of the other mobile platforms have today.”

But it still needs the consumers.

Why China really matters for Apple Pay is the fact that more than 358 million Chinese consumers made online payments using their mobile devices in 2015, according to stats provided by the China Internet Network Information Center. Still, getting Apple Pay into China hasn’t been an easy task for Cook, as there’s been plenty of regulatory hurdles to overcome.

Not to mention getting banks and merchants on board.

China is the fifth country for Apple Pay, with its U.S. launch in the fall of 2014 now close to a year and a half behind us. It since has expanded to the U.K., Australia and Canada (but only through American Express-issued cards for the latter two). The transaction fee debate has been reportedly what has halted its expansion more across Australia and Canada. France is reportedly next during the second half of 2016.

Apple’s State-Owned Press Support

Apple Pay just got the backing from an odd source — the China state media.

China’s state-run newspaper Economic Daily published an endorsement this week that touts the security standards of Apple Pay. The paper also published details that hadn’t previously been reported about the negotiations that occurred between Apple and China officials to bring the mobile payments service into the country.

“Apple Pay and the technologies it is applied to strictly comply with the country’s relevant standards, in addition to passing the supervising process and other tests and authentications,” the report said.

These negotiations reportedly took three years, and involved checks of Apple Pay’s security standards. The disagreements that initially halted the deal were said to be because of the financial terms. But, as noted above, what the report did reveal is that Apple made compromises on its side to get Chinese officials on board. This was reportedly a different process than in Apple Pay’s other four markets.

“Apple made a bigger concession than the market rumors saying the company largely reduced its charge rate,” the paper quoted from the report.


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