With Samsung Pay and Apple Pay both coming to China, what to expect next?

Written by Paolo Di Fonzo || 22 Dec 2015

2016 should be the year when finally Apple Pay manages to launch in China, as announced by the Cupertino-based company on its own website and as was already reported by the Wall Street Journal earlier this past autumn. This wasn't really a surprise as Apple had long talked about its China plans for Apple Pay. Less expected, Samsung Pay is also going through the same process and should also launch in 2016.

Although in-depth details are not available, the two tech-giants have both reached the similar agreements with China UnionPay and several Chinese banks to allow CUP cards to be used with the respective apps on CUP's QuickPass payment product. Apple Pay seemingly went through a very long process to be able to get to this point, over a year and a half from its original release in the US. Samsung Pay was actually only released in South Korea in September 2015 and has managed to insure an agreement with UnionPay quickly.

Assuming that no other obstacle comes in the way, the two companies will inevitably be targeting to launch in time for Chinese New Year to be a payment option in time for the spending spree that typically surrounds the holiday, which will be a good first test for the two platforms. For now, it is only possible to speculate on how they will fare.

The Technology

Apple Pay and Samsung Pay basically share all of the same technology characteristics including tokenisation, NFC, use of scanned credit and debit cards for payments, and compatibility restricted to their own device. There is one big difference technically though, which is Samsung Pay's use of Magnetic Secure Transmission (MST).

Although a heavy oversimplification, MST brings together the usability and security of mobile payments with “old” magnetic card swipes. This could be very important as it means that Samsung Pay can be used everywhere there is a POS, whereas Apple Pay is reliant on NFC, so needs a CUP QuickPass POS, which means that Samsung will start off with a huge edge on acceptance.

Both platforms are actually limited by hardware insofar as they only work on their own platforms. In Apple’s case only models after iPhone 6 are equipped with NFC antennas and Apple Pay only works on iOS. Samsung approach is similar, as Samsung Pay is compatible only with the latest Samsung flagship models, but according to a report from Korea Herald, eventually also low and mid-range phones will be enabled. 

This can be important expecially for China. Recently Apple has been very successful in China as, according to IDC Mobile Phone Tracker, in Q1 of 2015 Apple mobile phones were the most shipped mobile devices in China, a 62% year-on-year growth, in the meantime Samsung sales decreased by 53% over the same period.

So basically, there should be more “usable” iPhones than Galaxies in China in this regard, but eventually more Samsung phones will become part of that category and in general Samsung Pay could potentially be much easier to use because of the MST. This means that in the end, most of Chinese will, well… likely keep using Alipay or WeChat payments, as these seems to be working extremely well for them and they are using them anyway for messaging or buying from Taobao, just as in the US Apple Pay failed to gain any traction because people are perfectly fine with sticking to plastic cards.

So what's the implication?

Does that mean that this is a failure and Apple and Samsung are doomed to fail?? Of course not. For Apple and Samsung the core business is selling phones, not making money off payment fees. Providing an additional service in countries where this is lacking (like the US) or where it is already developed (like in China) is a primary need as it could give that little spark to help them emerge victorious in an extremely competitive environment, whereas lagging behind, even on minor upgrades, could be disasterous. Also, some potential customers not yet using mobile payments might be attracted to the market by the calling of big brands.

That explains why Samsung seems to be sneaking in just as Apple Pay is being released and when it wants to enlarge the service to cheaper phones: it has a lot of lost ground to make up. 

In the end it certainly would be a good thing for these two giants if their payment services ever become popular in China (although that is probably not going to happen because of Alipay’s diffusion), but what matters the most for them is ensuring people choose their phones “just in case” they ever want to use them to pay in another way.

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