Here's one of 'em.
Photograph by Nelson Ching — Bloomberg via Getty Images
By Scott Cendrowski
October 28, 2014

When the iPhone 6 arrived in China 11 days ago, Apple Pay was disabled. Caixin, the country’s top business magazine, which reported a month ago that Apple Inc (AAPL) had reached an agreement with UnionPay, the state-owned payment processing system, to activate Apple Pay in the country, now says Apple Pay isn’t expected until March.

Even if it arrives by the spring, Apple Pay has a tough road ahead in China. Why?

1. China’s use of credit and debit cards is far below that of Western countries. For now the country remains a cash-based society, something that Apple can’t quickly change. Here’s a list of cash-only sellers in Beijing: taxis, McDonalds, small markets and shops, lunch stalls and cafeterias, many restaurants, even tourist ticket stalls. Electronic swipes just aren’t as popular yet.

2. Electronics transfers are, though, and that’s why Tim Cook was reciprocating some love for Alibaba’s (BABA) Jack Ma yesterday. Ma owns Alipay, a separate company from Alibaba that handles almost all the transactions on Alibaba’s marketplaces. Alipay’s QR code technology lets consumers pay at stores with the setup. Because of Alipay’s ubiquity—almost everyone in China’s big cities uses it—Apple Pay might have to share profits with Alibaba in order to get a foothold in China. Hence, again, Cook and Ma’s marriage talk.

3. The precedent isn’t on Apple’s side here. Visa, Mastercard, and American Express fought China for years to follow World Trade Organization rules and open its card system to foreign companies. Nothing happened. China has already discriminated against foreign processing companies, so why would it treat Apple much different?

4. China is still concerned about cyber security. Apple has come under fire from state media in the country over user security. Analysts believe China would rather use homegrown technologies in many areas of tech for security reasons, and payments is one. With Alipay’s success, Apple faces a strong competitor, or a possible dominant partner.

5. UnionPay, the card processing monopoly in China, holds the keys for Apple Pay and will almost surely play tough. While Apple isn’t trying to compete directly with Unionpay, the monopoly controls transactions in China and likely won’t give Apple the same slice of revenues the company may receive elsewhere where Mastercard, Visa, American Express, and Discover compete against each other.







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