The "marriage" that Apple's CEO and Alibaba's founder are hinting at could create a mobile wallet with a global reach that well exceeds that of most banks, telcos and other mobile-wallet developers in either company's home market.
The two technology giants can address each other's needs almost perfectly: Apple has launched a mobile wallet in the U.S. but needs to establish itself in China, where Alibaba's Alipay affiliate has a strong footing; and Alipay needs a way to reach consumers in the U.S., where one million people have already signed up for Apple Pay.
"Alibaba is the most prominent tech company in China and has a lot of weight and a lock on the Chinese e-commerce consumer, and Apple is the most popular technology brand in the west," said Gil Luria, an analyst at Wedbush Securities.
Apple CEO Tim Cook and Alibaba founder Jack Ma hinted this week that they were in talks, but the companies have not announced any formal partnership. "It could be that Apple wants access to China to sell more iPhones or to open an Apple store [in China]," Luria said. Cook told investors last week that the ultimate goal of Apple Pay is to sell more iPhones; its latest iPhone models launched in China on Oct. 16.
"Everybody is trying to gain access to the Chinese economy with its potential for enormous growth," said Richard Crone, a payments consultant. "Binding the two with a common payment platform could go a long way to opening up both markets."
Another need Alipay can address for Apple is the small range of payment options currently available in Apple Pay. Apple has enrolled over 500 banks to support its mobile wallet, but these issuers are going live gradually; Apple Pay also does not support payments from Discover cards and PayPal accounts.
Rival mobile wallets typically offer some form of prepaid account for consumers who don't have a card from a participating bank. The U.S. wireless carriers' Softcard wallet is linked to Amex's Serve prepaid platform and Google Wallet launched with a virtual prepaid Google card, but Apple doesn't have anything comparable. Alipay, which is similar to PayPal, could become a default payment option for Apple Pay consumers whose bank or credit union doesn't participate.
"Apple's all about making it easier for the consumer. If the consumer can add other payment types besides credit cards, such as Alipay, it will open more markets for Apple," said Ralph Dangelmaier, CEO of BlueSnap, which provides consulting and payments related services for merchants.
If Apple can provide cross-border access for Alipay, it would put pressure on PayPal, which has also had trouble bringing its payments business to China. PayPal did not provide comment by deadline, and Apple and Alibaba did not return requests for comment.
"Alibaba with Alipay and eBay with PayPal are 'twins' from different countries that are now competing internationally," said Mary Monahan, an executive vice president and research director of mobile for Javelin Strategy & Research.
PayPal has had a turbulent relationship with Apple. The eBay unit supports payments for Apple's iTunes store, but is absent from Apple Pay and has made several moves to cast Apple Pay as a competitor. But PayPal is in the process of separating from eBay, which should open opportunities for partnerships that have been unavailable to it as part of an e-commerce company.
"Alibaba definitely threatens PayPal/eBay," Monahan said. "When PayPal spins off from eBay, it will be a different animal, less of a threat to the Alibabas of the world and a more likely partner."
Any collaboration between Apple and Alipay would not be a slam dunk, however, since the companies could face pushback from regulators due to their sizes, Crone said.
Even so, the companies have a huge opportunity to work together and rattle the payment providers that are entrenched in each market.
"When two gorillas get together they can wreak some havoc the payments acceptance market may be globalized, but the issuance is regionalized," Crone said. "The world just got a lot smaller. Alibaba (which is affiliated with Alipay) may not be well known now, but if it puts its brand together with Apple, there are a lot of synergies."