Banking & Finance

Feeling insecure

Apple Pay finds it tough in China


Getting the thumbs down?

In the winter of 1949 the barcode was invented on a beach in Florida. Joe Woodland’s job was to speed up supermarket check-outs. Dragging his fingers through the sand on a day off, he found his eureka moment in the lines left behind, but the idea languished for years, only becoming a reality in 1974.

The barcode’s successor, the QR Code, was also obscure until the advent of smartphones allowed the labels to be used more broadly. Usage has been most pronounced in China, where many internet users have bypassed personal computers and gone straight to mobile technology. The abundance of smartphones – market penetration is a little over 60% – has spurred activity in financial technology (fintech) too. No wonder that China’s dominant mobile payment providers, Alipay and Tenpay, both utilise the encoding system. Unfortunately, the prevalence of QR codes also presents greater opportunities for fraud.

A report from Xinhua has highlighted several ways that “criminal elements” have corrupted QR codes to swindle consumers. One scam is to replace the codes on rental bikes (scanned to unlock the bike, see WiC339) with ones that solicit fund transfers from the victim’s Alipay or Tenpay account. Another is to use QR codes to instruct phones to download viruses, which can then be employed to steal user data. Xinhua notes that fraudsters in Guangdong used ruses like this to scam over Rmb900,000 ($131,000).

Last year mobile payments in China amounted to Rmb38 trillion ($5.5 trillion), The Economist reports, and Alipay dominates the market, with roughly a 50% share. If someone wants to pay for an item, they can open their unique QR code and scan it at a point-of-sale site, such as a supermarket. Once again, these codes offer security issues if captured. Surely then this offers an opportunity for Apple, which introduced its own mobile payment system in China last year.

Apple Pay uses Near Field Communication (NFC) to conduct transactions and requires a fingerprint scan to confirm a sale – a safer method than a QR code alone. But its payment method has struggled to gain ground in the market. Apple Pay only works on the iPhone 6 or a more recent model, and iPhone sales have slowed over the last year (see WiC340 and WiC323). The point-of-sale hardware needed for NFC transactions is also more expensive than QR code scanners and installed in far fewer locations, National Business Daily reports. For instance, a journalist at the newspaper was met with confusion at a popular fast-food outlet in Shenzhen on trying to use Apple Pay. “What Pay?” was the response from the cashier.

Part of the problem appears to be linguistic: Apple Pay would rather be known by its English name, but retailers might only know it by its Chinese translation. This appeared to be the case in the KFC outlet in question, as the manager explained to his staff: “He means pingguo zhifu”.

Nor did the staff member know that Apple Pay could be used with the UnionPay terminal installed on the till either, illustrating a wider awareness problem.

In this case the KFC manager told the reporter that Apple Pay is used once or twice a week, whereas Alipay and Tenpay are used repeatedly every day. To broaden its reach in China, Apple Pay partnered with UnionPay’s QuickPass processor at points of sale, but National Business Day says that shopkeepers are reluctant to use it because of the transaction fees charged to vendors. Nominally the charges are lower than the typical fees charged by Alipay and Tenpay, but these two companies generally offer subsidies which make their rates more favourable.

Despite the setbacks, there is optimism on the future of NFC payments. Li Chao, a fintech analyst at iResearch Consulting Group told the Global Times, “The popularisation of NFC is more difficult and takes more time than using QR codes, but NFC has advantages in security and a variety of situations, which means there is large potential for its development in the future.”

Li predicts it might be another five years before NFC gets its Chinese boom. But will Apple Pay be able to wait it out, and will it even lead the market when the moment arrives? Its local partner, the state-backed bank card giant UnionPay, is hedging its bets: last December it launched its very own QR code payment system too.

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