This question originally appeared on Quora: What are special considerations which Apple Pay faces in China which it does not face in other markets?
Answer by Paul Denlinger, Lived and worked in China for over 20 years, on Quora
For most people,
However, when entering the China market, there are certain things to keep in mind about China which make it different from other markets. First of all, China is ruled by the Chinese Communist Party, which rules and controls all of the big valves on the economy and society. The party is a political organization headed by the Central Committee, which controls policy and manages day-to-day affairs. The party owns and controls:
- All of the major banks
- All of the mobile telecoms
- UnionPay, the leading credit card processor, which is larger than
Visa and Mastercard
As for companies that the party does not directly own, it can control them through the granting and withholding of business operating licenses.
See Paul Denlinger's answer to How are business sectors and companies regulated in China?
Now, all of these issues have to do with China and how it works, and nothing to do with Apple Pay. Most business people would ask "So what does this have to do with my business?"
This has to do with how China works, and how it affects foreign businesses going into China.
Political Considerations:
Because the party has more power than even the state, and formulates domestic and foreign policy, it reserves the right to reach into everything. In most cases, it will not reach into everything, but if a big western company wants to come into China and make piles of money, as is the case with Apple Pay, it will come under very close scrutiny. This is because China wants the winner in any sector to be a Chinese company, not a western company, and it does not like the idea of a western business siphoning profits out of China. In this way, the party is very protective of Chinese business interests in a way which American and western governments and businesses are not. Western governments talk about creating a level playing field, but the Chinese government wants a playing field which favors Chinese businesses. It has no interest in a level playing field. For this reason, the Chinese are going to be very wary of Apple Pay.
In China, the 1 - 2% transaction fee is divided between the card issuing bank, the receiving bank, and UnionPay, the credit card payment transaction processor. For most China domestic transactions, all three parties are owned and operated by the government and party. No one else gets anything. Apple Pay wants .15% on each transaction. It may be only .15% per transaction, but Apple is asking for a seat at the big table where only Chinese state-owned enterprises sit. Where is this .15% going to come from? If Apple says that they want to add this onto every transaction, then it becomes part of the credit card payment transaction ecosystem in China. This would be the first time a foreign company would be allowed to do this. In order for this to happen, it needs permission, most likely from the Central Organization Committee which is chaired by China's Premier, Li Keqiang. If the Chinese government does not permit this .15% fee to be added, but instead be deducted from each transaction payment fee, then it needs to come out of the pocket of the current players which are already in the system and then transferred to Apple. Who is going to make this very unpopular decision? Why should they make it? The natural political inclination would be to pass the buck on Apple Pay, and not make the decision as long as possible.
Because the Chinese Communist Party is a political organization, data is frequently used to achieve political goals. Right now, President Xi Jinping is leading an anti-corruption campaign against government and business corruption. Transaction data is very important in this political campaign as there is a lot of money-laundering. In the past year, UnionPay has tightened restrictions on transactions in Macau. As a result, gambling volume in Macau has fallen 30% over the past year at the major casinos.
http://www.reuters.com/article/2...
If Apple Pay were to operate in China, it would have to open a data center in China. What would Apple do if the Chinese government asked for certain transaction data because of suspicious activity? Because the servers would be in China, it would be very difficult to say no. What if it turned out that the Chinese government asked for personal information on people who don't agree with certain Chinese government policies? How would Apple cope with the public relations firestorm which would come from the western media if this happened?
Following the Snowden revelations, the Chinese government is basically asking for the same level of access to source code and proprietary information which western governments had.
This is the price for Apple Pay's entry into China.
Are there ways to square the circle?
Yes, there are, and if there is any company which can pull it off, it is Apple. It just needs to think different.
Have you noticed that there are only political considerations in this answer, and no business considerations? Any business person can think of the business considerations, but most non-Chinese don't understand the political considerations.
What are special considerations which Apple Pay faces in China which it does not face in other markets?: originally appeared on Quora: The best answer to any question. Ask a question, get a great answer. Learn from experts and access insider knowledge. You can follow Quora on Twitter, Facebook, and Google+. More questions:
