Chinese banks will reportedly pay half of what U.S. banks are forking over to support Apple Pay, a sizable gap that's due to Apple's relative fame in different parts of the world and the sizeable hype behind the product's U.S. launch in 2014.
"Apple doesn't have the brand fervor in China that it does over here," said Nick Holland, a payments consultant. "I heard bank executives in the U.S. say things like 'we're paying whatever it takes to be a part of Apple Pay.' The halo effect from a marketing standpoint was that important. I doubt the same occurred in conversations with Chinese banking executives."
If Chinese bankers did say that, Apple didn't hear it. According to Caixin, a local wire service, Chinese banks will pay about 0.07% per transaction for Apple Pay, which launched last week in China in partnership with UnionPay. Caixin also reported the talks in China dragged on for more than two years, stalling when the banks pushed back against Apple's initial terms.
That final figure compares with the 0.15% U.S. banks are paying, a figure that banks balked at even as they signed up in droves to join Apple Pay. An exec at Citizens Bank even described it as "the most one-sided agreement I have ever seen" back in 2014 when Apple's mobile wallet launched.
It was clear right away that banks weren't getting everything they wanted from the Apple Pay deal. Even before it was evident that consumers weren't flocking to the service, bankers advocated developing complementary mobile wallet apps to give their customers a reason to link their card to Apple Pay and to keep it top-of-wallet.
More recently, banks have endorsed competing products, such as JPMorgan Chase's collaboration with the Merchant Customer Exchange.
Another example is Prairie Cloudware, which is approaching U.S. banks to build issuer-specific mobile payment systems. Prairie Cloudware's initial partner, Union Bank, is partly motivated by slow adoption for Apple Pay.
Even with all of these issues, Apple Pay launched in the U.S. with more than 500 banks committed to supporting it and since that time has more than doubled that number.
"It would appear Apple is adjusting its market entry strategy on a market-by-market basis, which makes sense," said Thad Peterson, a senior analyst at Aite Group. "It also forces the Chinese banks to have skin in the game, which could help them prioritize Apple Pay against other players like Samsung."
Apple's negotiations have been particularly rough in Australia, where for more than a year Apple has attempted to come to a credit card interchange sharing arrangement, and has reportedly placed a gag order on banks threatening legal action if the banks discuss the talks. Apple did not return a request for comment by deadline.
"Apple Pay will be useless if it can't get bank-issued cards on it," said Tim Sloane, vice president of payments innovation at Mercator Advisory Group. "So what Apple can charge will be based on how the banks negotiate. I understand that in Australia, Apple had to negotiate with a single person that represented all banks surely providing the banks a more powerful negotiating position."
The competitive landscape inside a country also makes a difference. Apple has several rivals in the U.S., but none that have jumped out to a sizable lead. The challenge in the U.S. is still to get people to use the technology rather than to win them away from another mobile wallet brand.
"There is an established and intensively competitive mobile payments environment in China, with incumbents such as Alipay and Tencent taking a lion's share of transaction volume," Holland said, noting AliPay has more than 400 million users—a higher base than the entire population of the U.S. "Apple has some catching up to do."
It's also possible the market's evolution and emerging revenue streams will eventually reduce bank transactions fees in the U.S. for Apple Pay, according to Sloane.
"As bank contracts come up for renewal, I suspect we will see those fees drop and Apple will start to develop new monetization strategies, likely aimed at new services that merchants and issuers can pay to play such as ads, marketing, incentives, etc.," Sloane said.