Clash of the titans

Smartphones battle web giants for China payments

Smartphone markers are squaring up to internet giants in the battle for China's $2-trillion mobile payments market. Apple and Samsung have teamed up with state-owned UnionPay to take on web groups Alibaba and Tencent. UnionPay's card network and technology could give the new alliance an edge.

It may seem odd that the smartphone rivals have both chosen UnionPay as a partner for their competing Chinese apps. But the government-backed outfit has a monopoly in processing and clearing domestic bank card transactions. That means iPhone and Galaxy owners will be able to use and manage local credit and debit cards through Apple Pay or Samsung Pay apps.

Besides, the real contest in China is between UnionPay and the country's web behemoths. Bank card transactions - some $6 trillion in 2014 - are roughly five times larger than internet payments, but the latter are gaining ground fast, growing 46 per cent in 2015, according to iResearch estimates. Ant Financial, the $45-billion group controlled by Alibaba Chairman Jack Ma, can bypass UnionPay's network altogether. Internet users can link their bank accounts to Ant's Alipay service and then shop on websites, transfer money, or invest in online money market funds.

That has proved wildly popular amongst China's internet-savvy shoppers: As of last year, Alipay had more than 350 million accounts. As a result, Ant and Tencent's Tenpay control more than 90 per cent of the mobile payments market, iResearch reckons.

The new alliance will challenge that dominance. Apple and Samsung are betting that smartphone owners will use their credit cards in stores and restaurants provided it is convenient enough. UnionPay boasts that it has issued over five billion bank cards to date in China and abroad. Its wireless technology, known as near-field communication (NFC), will enable iPhone and Galaxy users to pay by holding their devices up to one of the four million UnionPay payment terminals across the country.

Chinese regulators will also play a role. They approve of NFC-based payments, provided the phones meet certain technical standards. That could give the UnionPay alliance a huge advantage over Alipay and Tenpay, which rely on barcode technology known as QR codes. Such payments are legally untested, and authorities have in the past prevented internet groups from launching virtual credit cards using the technology.

China's web giants should prepare to have their dominance in mobile payments tested this year.