Banks Eye QR Code-Based Mobile Payment After Seeing Apple Pay Struggle
Yicai Global
/SOURCE : Yicai
Banks Eye QR Code-Based Mobile Payment After Seeing Apple Pay Struggle

(Yicai Global) April 20 -- Chinese banks have realized that to participate in the mobile payment market, they should either develop their own QR code-based schemes or partner with Chinese payment apps, such as Tencent Holdings Ltd.'s [HKG:0700] WeChat Wallet and Alibaba Group Holding Ltd.'s [NYSE:BABA]Alipay, after they worked with Apple Inc.'s [NASDAQ:AAPL] Apple Pay, which has struggled in China.

China's banks and China UnionPay were initially bullish about the future of Apple's contactless payment method, and put massive manpower, materials, and funding into promoting it, a bank executive told Yicai Global. Inadequate marketing and a poor user experience prevented Apple Pay from succeeding, she said.

Customers shopping on West Nanjing Road in Shanghai favor WeChat Wallet and Alipay over Apple Pay.  

Apply Pay was formally released in China on Feb. 18, 2016. More than 30 million bank cards were linked to the service in the first day, but it is struggling to develop in the country.


Apple Pay's struggle


Apply Pay's contactless payment system failed to compete with WeChat's and Alipay's offerings.

WeChat and Alipay occupied 90 percent share of the top ten domestic mobile payment options and QR code-based payments totaled as much as CNY310 billion (USD45 billion). The remaining 10 percent of the market is taken up by 'contactless payment options' including Apple Pay, Samsung Pay, Mi Pay, Huawei Pay, and UnionPay's Cloud Quick Pay.

"The experience of the product itself caused the failure of Apple Pay," the bank executive said. "Firstly, the payment with QR codes brings an apparently good experience, and Apple Pay is inferior to WeChat and Alipay in the overall convenience and operability. Secondly, the promotion investment and marketing activities were not sufficient, which failed to provide subsidies for users in the broader payment scenario to cultivate user habit."

Subsidy is a highly effective way to cultivate user habit. WeChat and Alipay deployed use of QR codes in almost all key areas in major Chinese cities with massive subsidies while promoting, and enticed users with various online and offline discounts. "They provide massive subsidies for users, and users can enjoy discounts on many online apps through WeChat and Alipay," a user making a payment with Alipay said.

Aside from cooperating with UnionPay and banks, Apple Pay did not make huge investments in manpower or materials in either online or offline channels during early promotions. Apple Pay's online marketing did not provide 'red packets' as WeChat and Alipay did, and failed to offer large-scale discounts for users.

Apple Pay's offline expansion focused on high-turnover places such as Starbucks, 7-Eleven, and KFC, and largely ignored smaller vendors.

Even Apple Pay's advocates to recognize its problems. "I myself would still like to use Apple Pay, for it is highly appealing for customers with high risk awareness like me," one user said. "But the experience of using Apple Pay is not good enough. Even now when I buy things in convenience stores, I still encounter problems. Sometimes the cashier does not understand or cannot use Apple Pay skillfully, and sometimes the machine for card swiping is not agile enough to quickly align the corresponding swiping position on the point of sale machine. The convenient payment promised in the promotion is not realized. The experience isn't good enough."

Compared to Alipay or WeChat, Apple Pay has a high entry barrier. Contactless payment requires an iPhone 6, 6S, or subsequent generation device running iOS 9.2 or above and linking a bank card requires sophisticated verification. The elevated threshold coupled with POS issues have curbed users' adoption.

Merchants, who simply buy a QR code scanner or print out a QR code to accept WeChat or Alipy, have to shell out thousands of yuan to install a POS machine that can use Apple Pay's contactless scanning. Apple Pay's system is also more complicated for sellers to learn.


Near-field communications


Banks and UnionPay had tremendous expectations for Apple Pay's contactless payment, and hoped that the new method could help them compete with QR-based remittance systems.

Last year, all banks believed NFC (near-field communications) contactless payment would serve as a formidable competitor against the QR code, enabling them to regain a digital market presence, industry insiders said.

Contactless payment has several theoretical advantages. NFC payment with fingerprint verification is much safer than QR code payment. Large transfers available through the contactless method are not possible using WeChat and Alipay. Traditional financial institutions eyed NFC contactless payment for its security.

"During the initial development in Chinese market, banks considered NFC payment as a promising new star, backed by advantages of Apple Pay and the prevailing influence of UnionPay as an industry role model itself," a senior manager at a payment company said. "To this end, banks poured a wealth of manpower, material resources and capital into it."

Banks eye QR

Caught in the bind of contactless payment's failure, commercial banks began to eye other solutions.

"Admittedly, banks value users' payment means, but they attach paramount importance to the bank account customers choose behind the payment means," a source connected to banks said. Some banks don't plan to replace WeChat or Alipay and aim to be the preferential bank account bound to them, she said.

Many state-owned major banks and joint-equity commercial banks have provided access to scanning code payment services. Industrial and Commercial Bank of China (ICBC), China Construction Bank (CCB), and China Merchants Bank (CMB) are taking the lead in turning to the QR code payment market.

CCB recently announced a strategic cooperation with Alibaba and its arm Ant Financial covering mutual collaboration in business, technology, credit and services.

UnionPay officially published its QR code payment standards on Dec. 12, 2016 to encourage growth in the business.

CNY12.8 trillion worth of third-party payments took place in the fourth quarter last year, up 41.7 percent from the third quarter and 126 percent year-on-year, Analysys International figures show.


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Keywords: Banks , Mobile Payment , QR Codes , Apple Pay