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Apple Pay in China: How Will It Gain Traction?

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Apple Inc. (AAPL - Free Report) has finally rolled out Apple Pay in China. The tech giant has collaborated with state-owned credit and debit card operator UnionPay for bringing out the service in China. In addition, Apple has also partnered with another 19 banks to facilitate its entry.

Apple Pay in China can now be used through newer iPhones, Apple Watch and selective iPad versions at any point-of-sale system supported by the UnionPay system. However, iPad only supports in-app purchases as of now.

China is an important market for Apple. It has already become the second largest in terms of total revenue. For Apple Pay, China is the fifth market where the service has been made available. Apple expects that China with its massive population and increasing adoption of mobile payments can become a leading market for Apple Pay.

However, the path won’t be an easy one for Apple. After crossing the regulatory hurdles to enter the market, the next roadblock would be stiff competition from established players like Alibaba’s (BABA - Free Report) Alipay and Tencent’s Tenpay (works through WeChat) and newer entrants like Baidu (BIDU - Free Report) .

These players enjoy a first mover advantage and already have a fair share of the market. In addition, so far, a significant portion of iPhone users do not have phones compatible with Apple Pay.

However, Apple Pay should get a boost on this particular front as the upgrade cycle matures.

Also, partnership with UnionPay is a positive for the company as it is the sole regulator of near field communication (NFC) in the country. This apart, UnionPay has been steadily increasing its acceptance footprint in China. As per the latest statistics (Jan 2016), in 2015, merchants, POS terminals and ATMs accepting UnionPay cards increased 38.8%, 43.2% and 17% respectively, over the prior year.

Another important driver for Apple Pay in China is the strength of the Apple ecosystem and brand loyalty in the region. Apple Pay, in turn, would further make the ecosystem stronger and can also drive demand for other Apple products.

So far, Apple Pay has been well adopted in other markets given its ease of use without the need to compromise on security. As per an Accenture report in 2015, approximately 68% of in-store mobile phone payments in the U.S. were done through Apple Pay. 

Currently, Apple has a Zacks Rank #3 (Hold). Another stock that can be considered is MeetMe (MEET - Free Report) , sporting a Zacks Rank #1 (Strong Buy).

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